Ten reasons why you should be considering your next energy contract now

By: Tax Donut contributor

Date: 8 October 2013

10 reasons why you should be considering your next energy contract now/finger pointing electric energy meter{{}}Many businesses fall into the habit of delaying review of their current contracts or investigating their renewal options.  When they finally get around to it, they are often too late to make a difference and are forced to pay higher market prices as they run out of time to investigate the best deals. Here are ten reasons why you need to investigate your next energy contract sooner rather than later…

1.  It’s one of your largest overheads

Energy is often overlooked, but as well as wages, it’s likely to be one of your largest expenses. According to the Office for National Statistics, retail electricity prices have doubled in the past ten years, while natural gas prices have nearly tripled. Therefore, your energy budget may have the largest amount of room for cost savings.

2. Timing is everything.

The wholesale energy market is volatile. A volatile market presents opportunities to buy lower cost energy when prices dip. Waiting to purchase energy until the expiration of your current contract minimises your options; you have to buy energy at the going rate at that moment, even if it’s at a peak level. When you plan ahead, you can often wait until the price fits within or even below your budget before locking into a contract.

3. Swapping suppliers takes planning

If you’re looking for the best value deal you need to search the market. Business customers must give adequate notice if they wish to swap suppliers. Researching new suppliers, comparing offers and negotiating the best price also takes time. You therefore must act at least seven months ahead of your current contract’s expiry date.

4. Avoid expensive automatic renewals and out of contract tariffs

If you fail to renew your existing energy contract or switch to a new supplier, you can easily find your business locked into uncompetitive, out of contract tariffs for as long as 12 months, paying more than 50% above standard rates. 

5. Market your business as an ideal client

Marketing your business as an attractive client ahead of time provides the opportunity to maximise bids from potential suppliers for your business. Waiting until the last minute, on the other hand, creates a seller’s market.

6. You may need to develop a risk management strategy

An energy risk management strategy establishes your objectives, limitations and preferred approach to buying energy. Once established, it forms the framework for all purchasing decisions, helping your energy supplier spread the risk and protect against market volatility. Starting the process early means you can select a supplier that will help you deliver your chosen strategy, and gives time to monitor the market before purchasing has to start.

7. You need time to check terms and conditions

Suppliers' contractual terms and conditions are becoming more and more complex, as they add clauses that allow them to ‘pass-through’ additional third party charges during your contract term. You need to take the time to understand the small print of your T&Cs and their consequences, to enable you to make the right choice.

8. Your business is changing

You may have grown in the past few years or perhaps had to contract your operations. In addition, if you have recently undergone energy saving initiatives that have consequently reduced your energy usage, you may need to renegotiate your minimum tolerance levels on renewal. Make sure your next contract considers the changes occurring in your business.

9. Understand the energy contracts on offer to you

With a wide variety of contract types to choose from, you need time to ensure your new contract is right for your needs. One approach will be more suitable than another depending on your attitude to risk, budgetary requirements and internal plans for efficiency improvements.

Poor energy procurement decisions will hit your bottom line. Energy prices fluctuate, which can significantly affect your energy bill and performance against budget. By taking a proactive approach to buying energy, you can better control your costs.

Blog supplied by Nick Linklater, corporate business manager at ENER-G Holdings Plc.