Is your business keen to take more control of your energy costs?
Have you been asked to look at buying your energy more flexibly?
You’re not alone, while it’s not for every business, buying energy flexibly could be a good fit for yours.
Nick Vanstone, part of the team at EDF Energy that helps customers find the energy contract that works best for their business; gives a quick overview of flexible energy buying in our latest video.
So, could flexible energy buying be a good fit for your business?
Let’s take a closer look at what flexible energy buying actually is.
For starters, let’s remember that your total energy bill is made up of two parts.
- Firstly, your non-energy costs, about 60% of your bill;
- Secondly, your energy costs at roughly 40% of your bill.
Where your non-energy costs are fully flexible, they get reconciled once the actual costs are known. So you will pay the true cost of what your business uses.
But we’re going to focus on your energy costs today.
So, what is flexible energy buying?
Well, the price you pay for your energy is based on the wholesale energy market. Like any market, prices can be volatile and fluctuate over time. And the price of your energy is set by the going market rate on the day of purchase.
One way you could manage that risk is to buy flexibly.
You could choose to purchase your energy multiple times throughout the year - and pay the going market rate each time. So over the year, you have more opportunities to buy when you think market conditions are more favourable.
Right, so how does flexible energy buying work?
Well, let's take a closer look at your energy usage and see.
The first thing your supplier does is review the forecast shape of your energy consumption.
They’ll split this into baseload and peakload.
Ok, let’s focus in on baseload.
Your supplier will work with you to agree the level of baseload you’ll need. This will be the same amount of usage every half hour of every day. Your baseload consumption will vary, depending on the type of business you are. For instance, imagine an office and a supermarket that have the same overall annual usage. The office opens between 9am and 5pm and does not use much energy at night, therefore it will have a much lower baseload than the supermarket that operates 24/7.
Next, let’s move onto peakload.
When the baseload level is agreed, your supplier will work with you to agree any peakload. Peakload has the same amount of usage every half hour on weekdays between the hours of 7am and 7pm.
But the thing is: you can only buy your baseload and peakload energy in different-sized chunks on the wholesale market, we call these blocks or clips. So, your supplier works out the best combination of the different sized blocks to fit your unique forecast energy shape. This is called your Tradeable Volume, because it’s the amount of energy you’ll need to purchase from the market to power your business.
So, what about those parts of your forecast energy shape that don't quite fit the blocks?
We call this your non-tradeable volume. It’s made up of two parts:
- Firstly, Overcover – the energy you'll buy in your blocks but are not expected to use.
- And secondly Undercover – the additional energy you’ll need to buy which is not covered by your blocks.
The cost of this Non-tradeable Volume can be managed by different types of flexible energy contracts and, in most cases, this would be fixed at the time of signing the contract. So, do please check out your options.
And there you have it, your fast introduction to flexible energy buying.
If you’d like to find out more, look out for our handy guide – it’ll give more detail on the ins and outs - coming soon.
Bye for now!