A strong energy procurement strategy will optimally match your business needs with the right business energy deal.
Energy can be one of the biggest overheads for almost any business type, so securing the right price and the right terms for your energy can make a huge difference.
In this article, we will cover what flexible contracts are, energy procurement must-dos, and some commonly asked questions.
What Are Flexible Contracts
Flexible contracts are not as complicated as they seem.
The profile shape of the customer’s demand (consumption) trend is split into two separate categories. The baseload, and the peak.
The baseload can be thought of as the bulk of demand is very predictable.
Most businesses are able to provide fantastically accurate estimations as they have access to detailed levels of data.
The peak is essentially the spike in demand outside of the predictable baseload. This peak demand makes up the tradeable volume that is able to be traded within flexible contracts.
The wholesale market trades this volume in set blocks although the matchup between the block and customer profile may not entirely match. As a result of this, customers are able to buy a block of energy that may or may not exceed their total usage.
Where the purchased baseload and peak volumes exceed the customers profile, the gas can be sold back to the supplier. In addition to this, when purchased baseload and peak volumes fall under actual customer consumption needs, customers are able to ‘top-up’ and purchase extra volume in smaller blocks.
This mechanism is how the risk and reward of the wholesale gas markets is passed onto consumers.
What is the best Energy Procurement Strategy currently?
Forever and always, the best strategy will be determined by your business’ unique needs.
Those who understand this will always do well when it comes to procurement.
In these uncertain financial times, energy suppliers are being highly selective about who they deal with and are for the most part avoiding ‘high-risk’ industries. Examples of this are hospitality, retail, catering, and travel.
Any businesses in these sectors on a fixed energy deal while the market prices are rising will feel smug that they are in a good position from an energy procurement perspective, as they’ll be protected against the prospect of being hit by increased risk premiums.
However, as these are such uncharted waters in the energy markets at the moment, managing risk has never been quite so important.
As soon as prices go up, they can come tumbling back down.
Hence, having the right strategy in place and being able to respond to market opportunities is crucial.
What is the best Energy Procurement Strategy to manage risk?
Simply put, it’s the strategy that’s most suited to the business. But first, you need to understand the role of risk in your business.
Some businesses do not have the option of adopting higher risk for potentially higher financial returns as budget stability might be more important to them.
Your business may have long-term fixed customer sales contracts which do not allow for passing on increases in energy costs to your customers.
In order to protect profit margins, having fixed price energy contracts is preferential to having the opportunity to take advantage of falls in the energy markets. This is because the risks of energy price increases would ultimately be more damaging to the financial performance of the business.
For energy-intensive businesses, in order to compete on price, it’s important that you’re buying energy at the current market rate, so a flexible contract that tracks the market could be advantageous.
As a general comment, a fixed price contract which is renewed when the energy markets are low has historically added value, particularly as they often avoid increases in non-commodity costs.
What is the difference between a fixed and flexible energy procurement strategy?
It is common to view flexible contracts as riskier than their fixed counterparts but in reality, they can be used as a hedging tool to smooth out the volatility of market movements.
A flexible contract will allow you to fix any amount of energy for any period of time. For example, you could fix energy prices for half of your anticipated energy consumption for the duration of the contract. The other half would then be dictated by market prices. The price you pay would then be averaged between these two actions.
Whether you adopt a fixed, midi-flex, or fully flexible strategy – it is crucial to have a dynamic approach. It is so important to fix contracts when market movements present opportunities and not when you reach the end of a fixed period contract.
It is blind optimism to assume the markets will be favourable at the exact time you finish your contract.
Why Partner with a flexible energy expert?
Partnering with a flexible energy expert like Niccolo Gas and Power is a no brainer.
We can assist you by establishing and implementing an energy procurement strategy that best serves the needs of your business. We provide additional services like invoice validation and are a constant source of advice.
The Must-Dos of energy procurement
Of course, energy procurement can be challenging.
Especially when the markets are so volatile and prices fluctuate.
Effective energy procurement will make a profound impact on your business, especially during the recovery from the global pandemic.
For any organisation operating in the UK, developing a robust energy procurement strategy is an absolute must.
So, here are our top 5 ‘Must Do’s’ when it comes to energy procurement:
1) Set targets
Before you even begin purchasing energy it’s vital to set the goals of your procurement strategy. Every business is unique and it is important to factor this into your strategy. Whether uniqueness is due to tolerance to risk or even the budget that is available, it is important to tailor the strategy to fit the requirements of your organisation. These targets can then be referred back to throughout the procurement stages and act as a guiding hand.
2) Compare the market
Loyalty is often rewarded by suppliers for most businesses.
Not in the energy market, however.
As a result, comparing the market is always a good approach when it comes to energy procurement. To stay away from inflated prices when re-signing with a current supplier it is always a good idea to check what other suppliers are offering.
3) Be flexible
Although fixed energy contracts maybe offer different benefits to flexible contracts, like the offer of budget certainty as prices fluctuate, many companies are now turning to a more flexible approach.
A flexible price contract offers your business a method of procuring energy that keeps you on top of the market movements and can alleviate the risk of fixing prices at high points.
Wholesale energy can be purchased in smaller amounts throughout the length of the contract, which means your business can buy energy at the best times and take advantage of the best market prices.
4) Analyse data
Analysing and understanding the energy your business consumes can give a real insight into the type of energy contract you require. This helps you stay in control of your procurement. Energy management software is perfectly places to help you monitor consumption patterns and identify potential areas for savings.
5) Consult the expert
Energy procurement is and always will be a complex process.
So, who better to speak to for advice than the flexible energy experts, Niccolo Gas and Power?
We offer a comprehensive service that allows you to take full control of your energy procurement strategy. We have a learned and extensive knowledge of the energy market and know how to tailor your procurement strategy to your business.
Niccolo Gas and Power – A better choice
Unlike some suppliers, we actually want to talk to you.
If you are interested in our wide range of tailor-made product offerings then simply get in contact with us today. When you reach out to us, we will respond as soon as possible with our best prices – saving you money on your energy supply.
You can visit our website at https://niccolo.co.uk/contact-us
Or give us a call on 0131 610 8868
You can even email us directly at firstname.lastname@example.org
We look forward to hearing from you!