Six things to consider when negotiating a flexible energy supply contract
A flexible contract allows businesses to take advantage of the ever-changing energy markets, when fixed price contracts are too restrictive for your needs.
When you take out a flexible energy contract, our energy traders will purchase your gas or electricity directly from the wholesale markets – often securing lower rates.
A flexible contract allows businesses to take advantage of the ever-changing energy markets, when fixed price contracts are too restrictive for your needs. For larger energy users, we can help you take advantage of a volatile energy market and make sure you benefit from any peaks and troughs in the markets. Our aim is to maximise contract flexibility, whilst minimising your costs.
Let’s take a look at six things you should consider when negotiating a flexible energy contract.
The duration of your flexible energy supply contract is often driven by market liquidity – how easy it is to trade energy on the markets. The trading windows cover four seasons (24 months) for electricity, and six seasons (36 months) for gas.
Longer duration flexible energy contracts provide optimal trading opportunities – so we can manage prices over time and make strategic trading decisions. It is also worth putting in place a supply contract for any periods when you need to work within a budget.
It’s important to think carefully about your non-commodity costs when securing your flexible energy supply contract. There are many options available. These range from fully fixing all or some non-commodity charges, to having all charges fully passed through at cost.
Fixing non-commodity costs will incur a premium and there are opportunities to save on time based non-commodity costs, although these are reducing with changes to the way that distribution and transmission charges are calculated.
Non-commodity costs will make up around 67% of your overall costs by 2025. So, it’s vital to look at your wider energy strategy, and consider taking a more flexible approach.
Although the commodity element of your costs now makes up a smaller portion of overall spend, this is the element that we can influence most through active trading. We have access to supplier trading desks, and the ability to refloat volume means that we can sell back any energy that we have previously purchased on your behalf. Varying the size of tradeable clips should also be considered to maximise trading flexibility. Whilst there are minimum clip sizes that we need to work within, this gives us the option for multiple purchases, rather than purchasing all of the required energy immediately. This gives you more flexibility.
Some suppliers will also charge trading transaction fees, which can result in additional costs over the duration of the contract – so these should be factored into supply contract negotiations. We will also take into consideration your preferred trading strategy, ensuring that your contract provides the required levels of flexibility.
When tendering a flexible energy supply contract, suppliers can make a more suitable contract offer if they have accurate information to hand – such as precise volume forecasts. Some suppliers will apply a volume tolerance to a supply contract and set limits on reforecasting.
So, if there are any planned or known volume changes anticipated, it is important to take these into consideration. Putting in place accurate trading volumes from the start means that we can implement effective buying strategies, from both a trading and budgeting point of view.
When choosing a supplier to renew with, it is important to consider your requirements relating to payment terms, invoicing and data access. Some suppliers can be more flexible than others regarding invoicing and payment terms, and certain factors – such as credit – can impact on the options available.
There are also variations in what a supplier can offer in terms of data access. Whether this is access to consumption data or invoices via a dedicated contact, or via an online portal.
Negotiation and analysis
Suppliers will charge specific fees for managing a contract and offer different premiums – for example, for renewable energy options. It’s therefore vital to analyse supplier offers on a like-for-like basis, to ensure you secure the most competitive contract available.
Tender negotiations should consider all aspects of a supply contract, to achieve the best contract terms in line with your requirements. The main aim is to procure a competitive contract with a supplier that meets all of your day-to-day needs, whilst offering trading flexibility to suit your strategy.
How can EIC help?
Achieving more flexibility in the energy markets is an integral part of EIC’s client commitment. Through a variety of services, including flexible procurement, smart metering, and many years of experience working with carbon monitoring and compliance, EIC goes to great lengths to offer consumers freedom and flexibility.
Our goal is to find the bespoke energy package that best suits your business or property, while simultaneously lowering your costs and carbon emissions.
We have considerable experience in negotiating individual flexible energy supply contracts for our clients. We’ll analyse each offer, negotiate with each supplier and rank final offers against an appropriate scoring benchmark pre-agreed with you. From this, we’ll shortlist the leading suppliers and negotiate the best overall solution – ensuring that you’re fully involved at each stage.
Click here to find out how our Flexible Energy Procurement solutions can transform your electricity and gas-buying strategies.
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