Buying a fixed-price energy contract once a year or every two years could be a lot more risky than going into a flexible contract and buying “little and often” as price opportunities arise throughout the term.
That’s the view of Mark Alston, Director at ENER-G Procurement, who believes a lot of buyers “don’t seriously consider” anything other than a standard fixed-price contract.
With price being an issue for most businesses, he told ELN: “When you buy a fixed-price contract you’re just gambling that that was a good day to do it. A lot of customers have found themselves stranded as the market falls after they have fixed in their contract.”
Contracts this year slid all the way from January through to the start of July, “steadily dropping month by month” and customers that bought in January would have paid around 15% more than those who bought the same contract in late June.
“If they’d been buying little and often, they could’ve been protecting themselves throughout that whole period, buying parts of the volume they need as the price fell”, Mr Alston said.
He added a large number of mid-range corporates and large SMEs are still buying on “very regimented, old style” fixed price basis and they’re missing opportunities both on the wholesale price and the fixing premiums included in traditional deals.
He said: “What a lot of energy buyers don’t realise is that electricity and gas are commodities and they need to approach them as a commodity rather than a straightforward purchase contract.
“What we advise our customers to do is to get into a relationship with the supplier or broker which allows them to choose a time when their next contract is at its cheapest rather than just waiting for a point in the calendar when they traditionally look at them.”
He noted a lot of customers also think they are too small to access flexible contracts and although that is the case for very small firms, flexible contracts have been offered by suppliers to increasingly small-sized customers.
Mr Alston said currently, businesses only need to be spending around £750,000 a year on gas and electricity to get a basic stand-alone flexible contract but pointed out that even the smallest firms have the option of joining a flexible, collective energy buying scheme which would allow access to flexible purchasing in a “hands-off” way.
He is advising firms to think about energy buying a “bit more strategically rather than just renewing in the final few months before your contract ends”.
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