If there's one thing we've learnt, it’s trickier than ever to bring your energy bills in on budget.
Last year wholesale energy prices rose by 40% and we saw a lot of changes in non-energy costs. It’s good to know that even during times of high price volatility, you still have a range of buying options.
But do you know what they are?
Hi, I’m Fiona Cormack. Part of my job is to keep a team of account managers up to speed on which buying option works best for you. And it's even more important now when there's so much change in the energy market.
So, today, let’s talk through your five energy buying options, so we can help you find the one that works best for your business and budget in the year ahead.
Now, whichever one you choose, every energy buying option covers two types of costs. Number one: Your wholesale energy cost. This covers the actual electricity your organisation uses. Number two: Your non-energy costs. These cover getting your power to your site. They also keep the UK energy network reliable, and increasingly low carbon.
Okay, so what makes your energy buying options different? Well, it comes down to which of these two types of cost you choose to fix and lock down, or flex and leave open to change.
An easy way to understand this is to think of it like your mortgage. You can choose a fixed-rate mortgage where you’ll know exactly what you will be paying, but your rate may be a little higher. Or you can choose a tracker mortgage where your rate may be lower but you take on the risk of it changing.
Your energy buying options work in a very similar way.
Your first buying option, is to fully fix all your costs, you maybe pay a little more for maximum price certainty but it’s the easiest way to budget. And, at the other end of the scale, is your fifth buying option. You can flex all your costs and take full control of when to purchase your energy. And how to manage the non-energy costs. But, it’s harder to budget and you’ll be exposed to fluctuating energy prices and non-energy costs.
You also have 3 options in between. These enable your business to fix or flex different costs. Let’s take a look.
Your second buying option is to keep all the established non-energy costs fixed, and just flex the more variable ones – those that are more difficult to forecast. By making these unknowns flexible, you can avoid paying extra to for them. But it does mean your business needs to be ready to pay if, or when, they come in.
Your third buying option is to fix all your non-energy costs and flex your energy costs. This works best for businesses who want to spread their energy purchasing. You can monitor the market and you can purchase multiple blocks of energy. Again, you’ll be exposed to fluctuating energy prices.
Your fourth buying option is to fix your energy costs but go flexible on your non-energy costs. It's worth noting the Non Energy Costs are mostly unknown at the start of your contract - so they have to be forecast. By choosing to flex them, you will pay the true cost once the rates are published, whether they’re higher or lower than originally forecast
So there you have it.
A quick overview of your five energy buying options, from fully fixed to fully flexible.
To find out more about the pros and cons of each buying option, check out our guide. Whichever one you choose, it's important that you understand what's included - and what's fixed.
As always, we're here if you want a hand choosing the best option for you. Learn more about our products and get in touch to discuss how we can help.