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Are you going to benefit from recent falls in the energy market?

 

Posted on 31 May 2016

There cannot be many people in the country who are not aware that last year wholesale gas and electricity prices fell sharply but surprisingly very few businesses are actually taking full advantage of the current market conditions.  Price differences can be quite staggering – I recently reduced a client’s annual gas bill by 40% as a direct result of these market movements.

At the start of 2016 we saw wholesale prices for gas and electricity at a level not seen since 2007.  Prices have rallied recently but the wholesale price is still at the lowest point since 2010. Although it is true that prices could fall further the overall picture is that now is one of the best times to purchase energy contracts in recent years.

Most companies generally negotiate their energy contracts 1-2 months before the existing contract ends. This is fine as it allows sufficient time to implement new contracts but it does not necessarily mean you will get the best value for the supply. You will simply get the best price available to you on the day you have selected to fix.

So what can you do? Firstly let us consider your monthly bill. As well as the wholesale energy cost your bill is made up of a number of other elements such as distribution costs, metering charges, Climate Change Levy, Feed in Tariff etc. all of which have rising and are charges over which you have no control. However, the wholesale energy element, which typically makes up 60%-70% of your bill, is something you can control by watching the market and negotiating new contracts when you think the market is at it’s most competitive. 

Most suppliers will discuss new contracts at least 6 months in advance with many willing to secure rates 12 months or further in advance. This means that even if your current energy contract does not end until late 2017 you can fix prices today whilst the market is low and benefit from the current conditions when the new contract comes into effect. 

Looking to fix early is not for everyone and you should consider what would happen if the markets fell further after you had secured. Additionally, when securing early suppliers may include some form of risk premium in their quote and you may reduce the number of suppliers who quote.

If you would like any further information or assistance with looking at your future energy renewals please feel free to contact Laurence.fitch@auditel.co.uk / 01234 708466.

About the author: Laurence Fitch is a specialist energy advisor with independent cost management consultancy Auditel who provides advice to over 3,000 clients nationwide.

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