Business electricity buyer's guide: dealing with rising prices

Business electricity buyer's guide 2021 - Part 2: Insider tips and buying strategies to help you deal with rising energy prices

By The TalkPower Team | Posted July 04, 2023

There’s one thing every customer has in common – the desire to get the best price for their next business electricity contract.

There are a few decisions you need to make to achieve that:

Firstly, when to secure your price? Do you contract early because you think costs will rise further 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 for one year to limit your exposure to higher energy prices or, go for a longer contract to take advantage of lower energy prices further into the future?

How fixed do you want your price? Do you restrict your contract duration up to April 2022 to end your contract before any regulatory changes to non-energy costs start to take effect? Or, if you go beyond April 2022, you need to decide whether to choose a premium fixed price product that protects you against known regulatory change, or a standard fixed price product that may not.

If you’re confused which are the right calls this year, you’re not alone. Many of the costs that make up your price have either been rising or are subject to significant overhauls in how they will be charged. So, chances are any new price you’re quoted today will look significantly higher than your current price (which reflects the costs of a year or two ago). (Get a more detailed explanation in Part 1 of this buyers guide).

Don’t guess or hesitate (rarely good strategies). Read on for our two insider tips and four 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 April 2017 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.

The run-up to winter can be an uncertain time for the market, and as we’ve seen on several occasions over the past few years this can lead to volatility. 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

Recent market volatility has reminded us 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.

The price of gas and carbon as well as the geo-political climate all impact the wholesale power price. Read what’s caused the recent price volatility and what to watch for to make an informed decision.

That’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?

There’s no nice way to say this, so I’ll just say it straight. As things stand, you’re likely to see a significant difference between your current rates and your next contract’s prices.

Here’s a way to think about the options in front of you:

Option	Why?	Upsides	Downsides
1. Sign a contract now and consider limiting the end date to April 2022	From a non-energy costs perspective, you should be protected against planned regulatory changes.	You can set your budget until April 2022. 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 feel like a big increase against your current rates.
2. Wait to sign your next contract.	You think this is a blip and energy prices will fall before you have to sign your next contract.	You’ll avoid locking in what you see as a blip in energy prices. You can buy when you see fit (before your current contract ends). The regulatory landscape might become clearer and it might be easier to compare different supplier offers.	You’ll kick yourself if energy 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.
3. Take a longer-term contract now on a premium fixed price product.	Because power prices for 2022 and 2023 are currently lower than the 2021 prices you see in the chart above, offsetting some of the potentially significant rise in non-energy costs, also protecting you against planned regulatory changes.	You will have certainty that the non-energy costs included will not be changed during the contracted period. You can set your budget for longer. You won’t have to revisit this decision again for 2 or 3 years. Energy rates for 2 or 3 year deals could reduce your average energy costs.	You’ll still kick yourself if 2021 energy prices fall before your current contract ends, but not as hard as if you signed a shorter term contract now. If some of the planned regulatory changes get delayed, you could end up overpaying for non-energy costs.
4. Take a longer-term contract now on a standard fixed price product.	Because power prices for 2022 and 2023 are currently lower than the 2021 prices you see in the chart above, offsetting some of the potentially significant rise in non-energy costs, also protecting you against potential delays to planned regulatory changes.	From a non-energy costs perspective you could avoid over-paying for new costs that don’t materialise. Energy rates for 2 or 3 year deals could reduce your average energy costs.	You’re exposed to possible reconciliations of regulatory changes that do come in as planned, which will be outside of any budgeting you’ve made.

If your business uses more than 2GWh of electricity annually (roughly £200k), you can access more sophisticated contracts that can help you manage your exposure to these energy costs by staggering your energy purchases. Speak to your account manager today to find out more about our flexible contracts.