The Business Electricity Buyer's Guide 2022
There’s one thing every business has in common – the desire to get the best possible price for your next business electricity contract. However, to achieve this, there are a few decisions you need to make:
- Firstly, when should you look to secure your contract? Do you contract early because you think costs will rise further? or, should you hold off because you think that costs will fall before you fix your price?
- How long should you secure your contract for? Do you sign for one year or less to limit your potential exposure to higher energy prices? or, do you opt for a longer contract to take advantage of lower energy prices further into the future?
- How fixed do you want your price? Do you want complete price certainty for your entire contract duration? or, are you happy to take a slightly cheaper option that could result in price increases at a later date?
If you’re unsure which are the right calls this year, you’re not alone. Many of the costs that make up electricity supply prices have either been rising or are subject to significant overhauls in how they will be charged, and unlike for residential customers there is no price cap for business customers. If you last signed a contract before September 2021, it’s very likely the prices that you are quoted by suppliers today will look significantly higher than your current contract. For a more detailed explanation on why this has happened, take a look at our 2021 Business Electricity Buyer’s Guide and check out our Power Market webinar.
Continuing price volatility in wholesale markets
In September 2021, we saw a series of events that triggered large scale market disruption driving up the price of electricity and gas. During this period of volatility, it was very difficult for energy suppliers to stand by the price they had previously quoted to customers. In many cases, by the time the contract had been sent to a customer for signature, the market had already increased significantly requiring the offer to be withdrawn. An electricity market that historically would move 20p/MWh day to day, was now moving £20/MWh hour to hour. For some suppliers, this level of volatility was simply too great, and they decided to stop offering contracts to customers.
Looking ahead to September 2022, there is a real possibility that we will see similar levels of volatility and disruption. We believe many business customers still need to renew their electricity supply contracts by the end of September. Insight gathered from our network of channel partners along with our own internal analysis suggests that a lot of businesses have delayed finalising their electricity supply contracts for the upcoming winter and beyond due to the unprecedented increases in wholesale energy costs.
Considering contextual factors that will affect pricing
Purchasing decisions must be taken by businesses before their contracts end, to avoid exposure to high out of contract rates. If all the businesses needing to secure their next electricity supply contracts by the end of September hold off and leave it to the last minute to make their contracting decisions, we will see a lot of businesses buying in the market together. This creates challenges for energy suppliers from an operational perspective (there are only so many Account Managers available to send out contracts) and increased buying activity could also drive further market volatility.
We believe there is a high likelihood of market-wide disruption in September.
Consider acting now for certainty
Here at EDF, we have always avoided giving businesses specific advice on when to sign and for how long. We simply explain the options and outline the risks.
This year is different.
We are advising our business customers to give serious consideration to signing their next contract as soon as possible, ideally before the end of August, to avoid getting caught up in the potential disruption.
We could be wrong. The market may stabilise earlier than we anticipate. There could be peace between Russia and Ukraine or other changes which impact the current outlook. But this year, we believe the signals are suggesting that contracting in September may be tricky for businesses and suppliers alike.
Securing your next contract now will mean you avoid the impact of any further wholesale price rises across the remainder of 2022 and can start to set your budgets and firm up plans for your business.
A quick note on contract length
When signing your next contract, we suggest businesses are cautious about contracting beyond the end of March 2025. Ofgem have announced significant regulatory reform to Distribution and Transmission costs that could fundamentally change how suppliers (and therefore customers) are charged.
If you sign a fixed price contract beyond this date, you are risking a further change in prices if this planned regulatory change takes effect from 1 April 2025 as regulatory changes may impact pricing, even on fixed rates. It’s for this reason that we are not currently offering our Fixed + Peace of Mind product beyond 31 March 2025 – with these regulatory changes on the horizon we cannot confidently predict what the true costs for business customers will be.
Check out our recent Business Electricity Buyer’s Guide Webinar
For businesses with electricity contracts due for renewal, we encourage you to watch our recent webinar which is currently available on Talk Power: The Business Electricity Buyers Guide 2022.
How to keep track
Market Insight - Use our online portal to track commodity prices and get the latest view from our analysts on what’s driving these. You can also get the latest wholesale power market prices alongside expert commentary in our fortnightly market pulse. We’ve created this handy infographic to help you get the most from the tool.
Speak to us today - We have a range of contracts to suit your needs and help you make the right energy decision for your business. If you’re already a customer, please talk to your account manager to discuss your next contract and if you’re looking to move to EDF you can contact us here.