Across the UK we're becoming increasingly aware of energy price rises. While news reports have focused on price hikes for domestic consumers, it's a similar picture for commercial energy users.
There are a variety of energy conservation measures that can help keep energy bills down by minimising electricity and gas use. However the truth is that these resources are, and always will be, an essential part of our utility bills. With this in mind we are faced with a challenge – finding ways to be super savvy when buying energy in order to avoid paying through the nose for this costly commodity.
Average industrial electricity prices, excluding green taxes, rose by four per cent in 2013 compared with 2012, and we are now facing an increase of approximately 20 per cent in wholesale prices by 2015. So the problem isn’t going to go away. However, the glimmer of hope in this news is that although prices will increase overall, there will be fluctuations along the way and if you buy smart, you can strike when the market is at its most financially attractive.
The trick to playing the market lies in finding the right contract to suit your operations. Energy use varies from business to business depending on a multitude of factors. No matter what factors impact your energy use, the cornerstone of all procurement is knowing how much electricity and gas you need and then deciding how to buy it.
Take for example a parent company that has 10 leisure complexes in its estate, each of which has an annual electricity consumption of 1,000,000 kWh. The company will need to purchase at least 10,000,000 kWh to keep all 10 facilities running for one year. Obviously there are other, more complex considerations to take into account, such as potential expansion, but all energy procurement starts with a baseline of energy required per year. Then comes the question of which type of contract you want to utilise in buying your electricity and gas.
So what contracts are available to commercial users? There are a lot of variations available, making it possible for businesses to find the best fit for them. There are fixed options that help those that need close budget management by allowing them to lock into a set price for their contract duration, or flexible contracts for those who have a greater appetite for risk.
FIXED CONTRACTS
We’ll start with a fixed contract. This option allows you to lock into a set price, which you'll pay for the duration of your contract. If your contract begins when the market is low then you obviously benefit from a good rate, which won’t increase when the market prices for electricity or gas go up. This type of contract comes in different forms and your choice will depend on just how much budget certainty you want. Fixed contracts give you a set unit price for your electricity or gas and once this is locked in, it won’t change. What will change, however, are the additional charges that make up 25 per cent of your bill. These are the distribution network charges and an assortment of green taxes, which will go up despite your contract being fixed.
That's where a fully fixed contract comes in – a variant of the fixed contract that includes the benefit of a fixed unit price for electricity and gas, with the added advantage of fixed network charges, taxes and levies. The obvious advantage here is that you have full budget certainty and know what you’re going to be paying for the entire contract duration. The disadvantage is that even if you lock into a good rate, you don’t have the freedom to change this rate if the wholesale price for energy goes down.
FLEXIBLE CONTRACTS This is where the flexible option comes in – a contract that allows for greater freedom in making the most of the best rates as and when the wholesale market changes. Unlike fixed contracts, flexible contracts enable you to take advantage of the fluctuations in electricity and gas prices by allowing you to trade your consumption against the wholesale market when prices are low. Budget certainty is not as strong with these contracts but the advantage lies in your freedom to take advantage of the market at its lowest.
Separating good and bad energy contracts can be an arduous process, but the main thing to remember is not to start this process too late. Renewing your energy contracts in advance, by even as much as 12 months, will give you a great footing because it'll help you find the right deal at the best price and will give you the time to shop around.
The rising cost of energy is a real concern, and we shouldn't be complacent. Energy makes up approximately 30 per cent of the running costs for a typical sports centre (according to the Carbon Trust), so make sure you're thinking ahead and getting a deal that best fits your needs.
Utility Connections Ask TED, The Energy Desk’s specialist help desk, answers your questions How do I know if a fixed or flexible contract is best for me? This depends on how much appetite for risk you have. Fixed contracts are more suited to those who need a high degree of budget certainty and flexible contracts are for those who will take the risk of playing the wholesale market. There are benefits of both type of contract but ultimately you want to find the one that will give your business the best price.
How do I manage a flexible contract? A flexible contract will, unlike a fixed contract, require a lot of management, and for this reason many companies have agents who handle this process on their behalf. Flexible contracts can only work to your benefit if you know what the market is doing at all times so that you can strike when electricity and gas prices are low.
If I choose a fixed contract, how do I make sure I get a good price? The trick in all energy procurement is shopping around and this is why you are best off starting the process as early as 12 months before your current contract ends. This will give you the time and space to tender as many providers as possible to get the best price and lock into an electricity or gas unit rate at the best time.
Should I choose a fixed or fully-fixed contract? These are two quite different options so it’s important to know which one you're going for, as this will impact your budget for energy bills. With a fixed contract you will get a set electricity or gas price but the additional charges on your bill won’t necessarily stay the same. Fully-fixed is the most budget-friendly option, through which you have a fixed energy price, with all additional charges also staying the same.
Energy desk
Luther Kelly is business development manager at the Energy Desk T: 0800 3777 889 F: 01282 877 081 E: [email protected] www.theenergydesk.co.uk
Across the UK we're becoming increasingly aware of energy price rises. While news reports have focused on price hikes for domestic consumers, it's a similar picture for commercial energy users.
There are a variety of energy conservation measures that can help keep energy bills down by minimising electricity and gas use. However the truth is that these resources are, and always will be, an essential part of our utility bills. With this in mind we are faced with a challenge – finding ways to be super savvy when buying energy in order to avoid paying through the nose for this costly commodity.
Average industrial electricity prices, excluding green taxes, rose by four per cent in 2013 compared with 2012, and we are now facing an increase of approximately 20 per cent in wholesale prices by 2015. So the problem isn’t going to go away. However, the glimmer of hope in this news is that although prices will increase overall, there will be fluctuations along the way and if you buy smart, you can strike when the market is at its most financially attractive.
The trick to playing the market lies in finding the right contract to suit your operations. Energy use varies from business to business depending on a multitude of factors. No matter what factors impact your energy use, the cornerstone of all procurement is knowing how much electricity and gas you need and then deciding how to buy it.
Take for example a parent company that has 10 leisure complexes in its estate, each of which has an annual electricity consumption of 1,000,000 kWh. The company will need to purchase at least 10,000,000 kWh to keep all 10 facilities running for one year. Obviously there are other, more complex considerations to take into account, such as potential expansion, but all energy procurement starts with a baseline of energy required per year. Then comes the question of which type of contract you want to utilise in buying your electricity and gas.
So what contracts are available to commercial users? There are a lot of variations available, making it possible for businesses to find the best fit for them. There are fixed options that help those that need close budget management by allowing them to lock into a set price for their contract duration, or flexible contracts for those who have a greater appetite for risk.
FIXED CONTRACTS
We’ll start with a fixed contract. This option allows you to lock into a set price, which you'll pay for the duration of your contract. If your contract begins when the market is low then you obviously benefit from a good rate, which won’t increase when the market prices for electricity or gas go up. This type of contract comes in different forms and your choice will depend on just how much budget certainty you want. Fixed contracts give you a set unit price for your electricity or gas and once this is locked in, it won’t change. What will change, however, are the additional charges that make up 25 per cent of your bill. These are the distribution network charges and an assortment of green taxes, which will go up despite your contract being fixed.
That's where a fully fixed contract comes in – a variant of the fixed contract that includes the benefit of a fixed unit price for electricity and gas, with the added advantage of fixed network charges, taxes and levies. The obvious advantage here is that you have full budget certainty and know what you’re going to be paying for the entire contract duration. The disadvantage is that even if you lock into a good rate, you don’t have the freedom to change this rate if the wholesale price for energy goes down.
FLEXIBLE CONTRACTS
This is where the flexible option comes in – a contract that allows for greater freedom in making the most of the best rates as and when the wholesale market changes. Unlike fixed contracts, flexible contracts enable you to take advantage of the fluctuations in electricity and gas prices by allowing you to trade your consumption against the wholesale market when prices are low. Budget certainty is not as strong with these contracts but the advantage lies in your freedom to take advantage of the market at its lowest.
Separating good and bad energy contracts can be an arduous process, but the main thing to remember is not to start this process too late. Renewing your energy contracts in advance, by even as much as 12 months, will give you a great footing because it'll help you find the right deal at the best price and will give you the time to shop around.
The rising cost of energy is a real concern, and we shouldn't be complacent. Energy makes up approximately 30 per cent of the running costs for a typical sports centre (according to the Carbon Trust), so make sure you're thinking ahead and getting a deal that best fits your needs.
Utility Connections Ask TED, The Energy Desk’s specialist help desk, answers your questions How do I know if a fixed or flexible contract is best for me? This depends on how much appetite for risk you have. Fixed contracts are more suited to those who need a high degree of budget certainty and flexible contracts are for those who will take the risk of playing the wholesale market. There are benefits of both type of contract but ultimately you want to find the one that will give your business the best price.
How do I manage a flexible contract? A flexible contract will, unlike a fixed contract, require a lot of management, and for this reason many companies have agents who handle this process on their behalf. Flexible contracts can only work to your benefit if you know what the market is doing at all times so that you can strike when electricity and gas prices are low.
If I choose a fixed contract, how do I make sure I get a good price? The trick in all energy procurement is shopping around and this is why you are best off starting the process as early as 12 months before your current contract ends. This will give you the time and space to tender as many providers as possible to get the best price and lock into an electricity or gas unit rate at the best time.
Should I choose a fixed or fully-fixed contract? These are two quite different options so it’s important to know which one you're going for, as this will impact your budget for energy bills. With a fixed contract you will get a set electricity or gas price but the additional charges on your bill won’t necessarily stay the same. Fully-fixed is the most budget-friendly option, through which you have a fixed energy price, with all additional charges also staying the same.
Energy desk
Luther Kelly is business development manager at the Energy Desk T: 0800 3777 889 F: 01282 877 081 E: [email protected] www.theenergydesk.co.uk
Originally published in Leisure Management 2014 issue 1
