LATEST MARKET UPDATE: Following a spate of panic-buying yesterday (12th January), gas and power prices have opened down in early trading this morning. Spot prices remain historically high today, but indications are that European traders’ anxieties following a spike in demand in the Asian markets may have been excessive.
Sourcing energy contracts for your business can be a minefield – contracts can be complex and the market can be unpredictable, especially for the uninitiated. On top of managing day-to-day business operations, it can be a mind-boggling and never-ending challenge to manage without expert help.
Seeking advice from energy consultants such as ourselves, who have established relationships with the major suppliers and can navigate complicated contracts and market movements on your behalf, can make all the difference.
But before a business gets carried away with handing over their contract negotiations and the prospect of having their energy consumption reduced, they would be well advised to take on board the following advice.
1. Be objective about what you are buying
Yes, you are buying energy, but you are entering into a two-way contract and one supplier may have half a dozen contract templates that have numerous differences. Even standard fixed 12, 24, and 36-month contracts can come with various built-in caveats that enable an end-user to renegotiate their cost mid-contract, should the opportunity arise.
Many businesses go to the market intending to find the best price which is completely understandable and the best price is something we always want to achieve for our clients, but what if the best price on the day you go to tender, is 10 percent more expensive than what you are currently paying? The above described contractual caveats become a really valuable feature of the contract, allowing the end-user to respond to movement in the market.
2. Look inwards
Businesses need to look inwards right from the off so they have a completely transparent view of exactly what their energy needs are and what challenges they face before turning to professionals for help.
Many consultancies will profess the wondrous performance of their trading strategies that beat the market by 15, 20, and 30 percent, however, consider this:
If you spend £5 million, outperforming the market by a negligible 1 percent saves you £50,000. The typical consultancy fee of £10,000 plus is more than paid for.
If you spend £50,000, the consultant would have to beat the market by 20 percent every year to just earn their keep.
This expectation is neither realistic nor a recipe for success. Be practical about what your business needs are and if you need help, work with someone who you trust to be honest, and willing to have what may sometimes be difficult conversations. Our role as professionals is not to be ye- men for the sake of winning short- term client favour for the sign-off. Our role is to build a strategic, considered, and deliverable plan and partnership and this is why we retain 98 percent of our clients.
3. Look outwards for what you need, not what they want you to buy.
Do we encounter billing or supply issues? Do we have compliance requirements? How long does managing our energy usage eat into our time? These are just some of the questions that the decision-makers should be asking themselves so that they can identify their needs. It sounds obvious and simple but not a lot of people think about it objectively. Once they fully understand their requirements and have got their energy bucket list, they are then in the right place to work with an industry consultant and stand a far greater chance of getting the right deal. Take the time to make sure your tender requirements are clear and to understand the financial implication of all the costs that go into an energy contract. The most important thing in any tender is to make sure that inclusiveness is at the top of the priority list.
When you are happy with the deal on the table and that everything that has been quoted is as per your requirement, the formality of signing the contract comes with ease and comfort.
If your portfolio has additional needs that are to be met during this contract, for example, bill validation, sustainability plans, metering and tech investments, compliance and legislative requirements, or whatever the case may be, we then establish a service level and delivery plan for all of the above.
As earlier stated in this article, the first step is identifying what your business requirement is, if you are unsure, contact us and we can quickly get a rough idea of what may or may not be appropriate contractually speaking.
If professional help and outsourcing is a viable option, then we can discuss and plan the next potential steps from there. Equally, if “bells and whistles” are likely to be more costly than reward, a simple but still comprehensive and transparent tender exercise is easily turned around and completed by our team within two weeks of receiving a written engagement from a new prospective client.