With the exception of today's downpour, the UK has enjoyed some stunning weather recently with temperatures reaching record highs, so winter is probably the last thing on your mind!
However, we’re sorry to tell you that the longest day was actually over a month ago and we’ve only got 20 weeks until Christmas! So, whether we like it or not, the winter months are approaching and it’s time to deal with any business energy contracts that are due for renewal in the winter months.
As a general rule, the cost quoted for your next energy contract will be more expensive in the winter months and this is particularly the case for gas renewals. Our recommendation is to negotiate your renewal early in order to secure preferential rates for your energy.
Our Energy expert, Helen Garner, explains a number of reasons why tendering for renewals in the winter months should be avoided:
1. Demand for energy is higher in the winter months
It’s no surprise that demand for energy is higher in the winter as businesses draw down on the grid more frequently in order to heat and light their premises. High demand is likely to increase the price of your energy bills as energy suppliers can charge more for a commodity that is in high demand.
2. Lack of necessary energy storage
The UK usually approaches winter with a level of rough storage to see us through periods of high demand. However, in 2017 the UK’s largest gas storage plant was closed by Centrica which historically had housed a large percentage of our rough storage provision. This coincided with a prolonged cold snap, culminating in the ‘Beast from the East’, which drained gas storage levels across Europe. This meant that prices for gas and electricity peaked for near term contracts.
3. Non-commodities charges continue to increase
Non-commodity charges have continued to rise year-on-year, as the cost of supporting renewable technologies and upgrading infrastructure to accommodate a changing energy system is passed through to end users’ bills. 2019 has also seen big increases in the Climate Change Levy, a 45% increase for electricity and a 67% increase for gas and it's likely that this levy will continue to increase in the future. Unfortunately, there is nothing that we can do about these non-commodity cost increases, however, we can try and keep the wholesale part of your energy bill to a minimum. One way to achieve this is to fix your pricing early.
4. Uncertainty around Brexit
It’s impossible to be certain what will happen with the energy markets in the run-up to and after we leave the European Union on 31st October but it’s likely that the market will be volatile. Energy is a traded commodity, made up of lots of different currencies (e.g. oil, gas and coal) and any political volatility will feed into this currency market and subsequently, this will have an impact on cost. Therefore, getting a head start and securing energy pricing well before this deadline could be advantageous.
5. Unplanned spikes in energy pricing
In addition to freak weather conditions, there are a number of other issues that could cause unplanned spikes in energy pricing, for example, nuclear outages as experience in October 2017. It’s often the case that clients wait until 1 to 2 months before the due date to go to tender for their renewal, however, this can leave you with a very tight window of opportunity to secure a good price for your energy contract. As I’ve discussed, the energy market is very unpredictable and if you are unlucky enough to need to renew during a period where there is an unplanned spike in energy prices any opportunity to fix at lower rates will have passed. You may be out of options and forced to renew at a higher rate.
It’s not easy to predict when the best time to go to market to secure your energy contract renewal is, but, in our experience its best to keep a close eye on the market or have a representative monitor this for you. Even if your contract is fixed to run for a few more months there are ways to secure your next contract(s) early. This will help you to manage costs and forecast spend. Even if you don’t want to sign up for a new energy contract in advance it's always worth looking at costs many months before your renewal is due.
Our energy specialists can guide you through the procurement process and help you to secure the right deal to suit your organisation. To get in touch, please call BCR Associates on 03330 433 233.