10 reasons why you should be considering your next energy contract now

Waiting until the last minute to address a need or to accomplish a task often results in negative consequences.

 Energy procurement is no different. Many businesses fall into the habit of delaying review of their current contracts or investigating their renewal options. When they finally get around to it, they are often too late to make a difference and are forced to pay higher market prices as they run out of time to investigate the best deals.

Here are 10 reasons why you need to investigate your next energy contract now instead of waiting until it's close to expiration:

1.  It’s one of your largest overheads

According to the Office for National Statistics, retail electricity prices have doubled in the last 10 years while natural gas prices have nearly tripled.  How often does your company review its benefits, costs, raw materials suppliers, and equipment leases to ensure it’s getting the best deal? Energy is often overlooked, but outside of the cost of labour, it’s likely to be one of your largest expenses. Therefore, your energy budget may have the largest amount of room for cost savings.

2. Timing is everything.

The wholesale energy market is volatile. A volatile market presents opportunities to buy lower cost energy when prices dip. But there is an equal risk of having to pay a premium during a peak period. Waiting to purchase energy until the expiration of your current contract minimizes your options; you have to buy energy at the going rate at that moment, even if it’s at a peak level. When you plan ahead, you can often wait until the price fits within or even below your budget before locking into a contract.

3. Swapping suppliers takes planning

If you’re looking for the best value deal you will need to search the market. Business customers must give adequate termination notice if they wish to swap suppliers.  Researching new suppliers, comparing offers and negotiating the best price also takes time. You therefore must act at least seven months ahead of your current contract’s expiry date.

4. Avoid expensive automatic renewals and out of contract tariffs.

If you fail to renew your existing energy contract or switch to a new supplier, you can easily find your business locked into uncompetitive, out of contract (or rollover) tariffs for as long as 12 months, paying more than 50% above standard rates.

Automatic rollover: Businesses pay more because their utility contract gets automatically renewed without negotiation.

Out of contract rates: Occur when businesses give notice on a contract but fail to have a new one in place before it ends.

6. Market your business as an ideal client.

 On average, energy suppliers earn a 6% margin. Therefore, they have to be selective on their clientele in order to earn a decent profit. Show your current supplier and potential new ones why you would make an ideal client.

Marketing your business as an attractive client ahead of time provides the opportunity to maximise bids from potential suppliers for your business. Waiting until the last minute, on the other hand, creates a seller’s market.

7. You may need to develop a risk management strategy.

An energy risk management strategy establishes your objectives, limitations and preferred approach to buying energy. Once established, it forms the framework for all purchasing decisions, helping your energy supplier spread the risk and protect against market volatility.

Starting the process early means you can select a supplier that will help you deliver your chosen strategy, and gives time to monitor the market before purchasing has to start.

8. You need time to check terms and conditions.

Suppliers' contractual terms and conditions are becoming more and more complex, as they add clauses that allow them to ‘pass-through’ additional third party charges during your contract term. You need to take the time to understand the small print of your T&Cs and their consequences, to enable you to make the right choice.

9. Your business is changing.

 You may have grown in the past few years or perhaps had to contract your operations. In addition, if you have recently undergone energy saving initiatives that have consequently reduced your energy usage, you may need to renegotiate your minimum tolerance levels on renewal. Make sure your next contract considers the changes occurring in your business.

10. Understand the energy contracts on offer to you

With a wide variety of contract types to choose from, you need time to ensure your new contract is right for your needs.  Ensure you research your options and understand the difference between a fixed, flexible or a collective product. One approach will be more suitable than another depending on your attitude to risk, budgetary requirements and internal plans for efficiency improvements.

Poor energy procurement decisions will hit your bottom line. Energy prices fluctuate, which can significantly affect your energy bill and performance against budget. By taking a proactive approach to buying energy, you can better control your costs.

Find out what makes up your electricity bill with this informative infographic 

 

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