Two insider tips and three buying strategies to help you deal with varying energy prices
There’s one thing every customer has in common – the desire to get the best price for their next business electricity contract.
There are two decisions you need to make to achieve that:
- When to secure your price: Do you contract early because you think costs will rise or hold off because you think costs will fall before you have to fix your price?
- How long to secure it for: Do you sign one year to limit your exposure to higher prices or go for a longer contract to take advantage of lower prices further into the future?
If you’re confused which are the right calls, you’re not alone. Many of the costs that make up your price are really quite volatile.
Don’t guess or hesitate (rarely good strategies). Read on for our two insider tips and three buying strategies to help you make the right call and get the best deal for your next contract.
INSIDER TIP 1: Don’t get caught up in the October rush
The graph below shows the wholesale power price from the start of 2018 to date and we’ve highlighted the lead up to the all-important October contract round. We can never predict the future of the power market, but you can look to make decisions using the information available to you. Market fundamentals such as oil and gas are the main driver of the wholesale power price.
However, with so much uncertainty and risk it may be best to lock in your contract at an earlier date.
This peak in buying activity has another effect. The lead-up to October gets busy. Our account managers work flat out during September once everyone is back from holiday and keen to secure their contract in time for 1 October. Starting your buying process during the quieter summer months can put you in a much better buying position.
INSIDER TIP 2: Watch the market fundamentals to understand what causes wholesale power costs to change
Market volatility means that you can’t take your eye off the energy cost - the cost of power on the wholesale market. This is still the single biggest component of your electricity price making up the 40%.
The price of oil and gas as well as the geo-political climate all impact the wholesale power price.
It’s a lot to keep tabs on. To make that easier for you, we publish all our latest analysis and figures in our Market Insight portal. Take a look.
So, what are your buying options?
Here’s a way to think about the options in front of you:
|Sign a one-year contract||You think prices are likely to rise||You’ll avoid future rises you’re worried about.|
You can set our budget for next year.
You can move on to other business decisions.
You avoid the peak pre-October buying rush.
|You’ll kick yourself if prices fall before your current contract ends.|
You’ll take the full effect of the recent rises in power costs. It will fell like a big increase against your current rates.
|Wait to sign your next one-year contract||You think prices will fall before you have to sign your next contract||You’ll avoid locking in what you see as a blip in prices.|
You can buy when you see fit (before your current contract ends).
|You’ll kick yourself if prices continue to rise.|
You won’t be able to set your budget yet.
You need to keep monitoring the market to choose when to ask for a quote.
You’ll be buying with many others.
|Take a longer-term contract now||If power prices for 2 or 3 years ahead are currently lower than next years’ prices, offsetting the rise in non-energy costs||You can set your budget for longer. Rates for 2 or 3 years are close to the price you’ll pay for one- year.|
You won’t have to revisit this decision again for 2 or 3 years.
|You’ll still kick yourself if prices fall before your current contract ends, but not as hard as if you signed a one-year contract now.|
If your business uses more than 5GWh of electricity annually (roughly £500k), you can access more sophisticated contracts that can help you manage your exposure to these costs by staggering your energy purchases. Watch our video to find out a bit more about flexible energy buying and see if it could be right for your business.
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Higher prices are never good news. And it’s impossible to predict precisely which way they’ll go next. But at least now you’ve laid out your options and know where to go to track all the costs behind your electricity price (hint: it’s Market Insight). So, you can make a decision with more confidence.