Manufacturers across the UK have been tackling volatile energy prices over the past few years. Juggling the need to keep costs down whilst navigating an ever-changing energy market.
You may be thinking about your upcoming renewal and what is the best way to secure your energy at a good rate. Whether you’re renewing later this year or in a year or two, it’s always best to be pro-active when it comes to your business’ energy needs.
The procurement experts from Make UK’s energy partner, Inspired PLC, have created a few energy scenarios to help you better understand what you can do now to better prepare for the future.
What is the state of the market today?
Whilst prices have returned to the pre-Ukraine invasion levels of January 2022, current wholesale electricity prices are still up 72% against the 2021 average. This means that many who secure another fixed price energy contract, whether that be for 12 months or 2 years, will most likely be paying more than they would have only a few years ago.
We don’t know exactly how the market will react over the course of the next few months but with many members’ electricity contracts due for renewal in April and October, here we have estimated approximate renewal rates.
If your energy contract is up for renewal in 2023…
Like many other businesses in recent years who may have secured a fixed rate energy contract during some of the highest market prices, will be seeking a new procurement contract later this year.
What can you do to prepare?
If your contract is up for renewal, you may be worried about the rates you’re able to secure whilst the market is still high. There are several options open to you, particularly when working with a seasoned expert.
Secure another 6 – 12 month contract
Whilst the market is still at an increased level compared to pre-pandemic prices, there are still many influencing factors to consider. From economic trends to geopolitical events, as well as schemes like the Energy Bills Discount Scheme to consider.
Securing another 6-12 month contract will provide you with some price certainty and security in the short term, but currently the market prices are still at inflated levels. There is a possibility that prices will be bearish over the next 12 months, meaning you can then look to secure an even lower contract for a longer duration. However, it’s always best to consult with an energy market expert as to what the best strategy is for your business.
Explore a flexible risk managed strategy
With renewal right around the corner, you may have heard of many energy experts recommending a flexible risk managed strategy whilst prices were at an all time high. Many took advantage of this strategy to protect against volatile energy markets and generate cost savings, particularly when compared to traditional fixed price contracts.
A flexible risk managed strategy allows you to fix, trade or sell back energy to spread the risk of buying your total requirement. You may choose to buy a high volume of energy when market prices fall, for example, or buy smaller amounts as and when necessary, when prices are high. This type of energy strategy gives you the most control over your energy.
An experienced consultant can walk you through the different risk management strategies available, from focusing on budget certainty or access to best price.
If you have a fixed energy contract for the next few years…
Even if your contract isn’t up for renewal until 2024 or beyond, it’s vital that you act now to prepare and secure your businesses energy future. Putting off exploring your energy procurement options could land you in a situation where you are rushing important decisions about your energy.
What can you do to prepare?
Contracts due for renewal in 2024 and beyond give you more time to make an informed decision. Take the time now to review your businesses energy procurement options. Whether that be a fixed or flexible procurement strategy and what best suits your businesses requirements. However, you should always consult your organisation’s risk management strategy before you decide to make or delay a purchasing decision.
Fix vs Flex
Many see flexible contracts as inherently riskier than fixed products due to the multiple purchasing decisions involved, but this risk can be mitigated by making well-informed decisions about when you buy your energy and how much you buy.
Fixed products also aren’t without risk – in fact, purchasing 100% of your contract terms worth of energy, as per fixed contracting, may be considered riskier than spreading out over multiple smaller considered purchases.
For most Make UK members, especially those who have historically utilised fixed contracts, Inspired PLC’s procurement experts recommend a flexible purchasing strategy, whereby you purchase the entire annual volume of your energy, over a number of purchasing decisions, prior to the contract start date. This allows you to better manage risk of a volatile market whilst also providing budget certainty for annual periods.
Portfolio strategies can be complex, so if you are interested in this approach, we’d encourage you to have a chat with an energy procurement expert to help identify the appropriate strategies for your businesses, based on parameters such as appetite towards risk, budget certainty and more.
Discover the best solution for you
Whether your contract is up for renewal in 2023 or in a few years’ time, it’s always best to be proactive in reviewing your energy procurement strategy. Generally, the earlier you start planning, the better chance you have of finding a workable energy solution, particularly at a time when there is increasing pressure across wider operational costs. With the ever-changing market, ensuring you have real-time market insights from the experts is also advisable.
It’s also important to remember your risk management strategy should be regularly reviewed, as there may be changes in the market or the business’s objectives that require adjustments to be made.
Make UK members are encouraged to see your current procurement strategy measures up with Inspired PLC’s energy procurement game.
Given the current market rates, as well as the overall downward trend we’ve seen in recent months, members are also invited to have a chat with the experts at Inspired, who have an excellent understanding of manufacturing and can help you plan your energy strategy: 01772 689 250 or email [email protected].