Across the UK we're becoming increasingly aware of energy price rises. While news reports have focused on price hikes for domestic consumers, it's a similar picture for commercial energy users.
There are a variety of energy conservation measures that can help keep energy bills down by minimising electricity and gas use. However the truth is that these resources are, and always will be, an essential part of our utility bills. With this in mind we are faced with a challenge – finding ways to be super savvy when buying energy in order to avoid paying through the nose for this costly commodity.
Average industrial electricity prices, excluding green taxes, rose by four per cent in 2013 compared with 2012, and we are now facing an increase of approximately 20 per cent in wholesale prices by 2015. So the problem isn’t going to go away. However, the glimmer of hope in this news is that although prices will increase overall, there will be fluctuations along the way and if you buy smart, you can strike when the market is at its most financially attractive.
The trick to playing the market lies in finding the right contract to suit your operations. Energy use varies from business to business depending on a multitude of factors. No matter what factors impact your energy use, the cornerstone of all procurement is knowing how much electricity and gas you need and then deciding how to buy it.
Take for example a parent company that has 10 leisure complexes in its estate, each of which has an annual electricity consumption of 1,000,000 kWh. The company will need to purchase at least 10,000,000 kWh to keep all 10 facilities running for one year. Obviously there are other, more complex considerations to take into account, such as potential expansion, but all energy procurement starts with a baseline of energy required per year. Then comes the question of which type of contract you want to utilise in buying your electricity and gas.
So what contracts are available to commercial users? There are a lot of variations available, making it possible for businesses to find the best fit for them. There are fixed options that help those that need close budget management by allowing them to lock into a set price for their contract duration, or flexible contracts for those who have a greater appetite for risk.
FIXED CONTRACTS
That's where a fully fixed contract comes in – a variant of the fixed contract that includes the benefit of a fixed unit price for electricity and gas, with the added advantage of fixed network charges, taxes and levies. The obvious advantage here is that you have full budget certainty and know what you’re going to be paying for the entire contract duration. The disadvantage is that even if you lock into a good rate, you don’t have the freedom to change this rate if the wholesale price for energy goes down.