Perplexing Procurement; Fixed, Flexible and Basket Energy Contracts

by 26 March 2019

So, you’ve decided to change supplier and/or get a new contract for your business energy. One of the first things you need to decide is what type of contract you’d like. Procuring energy can be very confusing at the best of times, especially when you are offered multiple types of contracts. There are many variants of each type out there, but the overall formats are Fixed, Flexible & Basket.

To make this decision, it is highly important you understand the different types of procurement strategy available to you and what each one of these involves.

What are the key differences between them?

Fixed Procurement – A one-off fixed price.

This is a product that will offer you price protection and security throughout the whole of your contract with a one-off fixed price, there’s no risk. The market can be a volatile place, prices can go up and down, and can pull the rug from underneath you if you’re not careful. This format will protect your rates from any unpredictable movements and provide budget certainty.

Flexible Procurement – Buy energy in smaller chunks throughout the whole contract, a little bit at a time.

This is a product which lets you buy energy throughout the whole of your contract in small quantities. Enabling you to decide when and how much energy you purchase, depending on the current market. This will help spread risk when purchasing energy over multiple points throughout the contract, rather than fixing on a single rate for the whole contract.

Basket ProcurementCombining numerous meters to benefit from economies of scale

This is a product that works similarly to the flexible product, it basically lets you purchase energy throughout the whole contract period at different points dependent on the market. The difference is that it lets you combine the bulk buying of energy for several different meters; whether that be lots of meters for a large company or individual meters for lots of small customers. Either way the benefit is that you can reap the rewards of economies of scale. It opens up bespoke pricing and access to trading on the wholesale market.

If doing this as a large company with many meters it can help save time, refreshing numerous meters all at one time preventing you being caught by sudden spikes in the energy market. Pooling together meters will also help offer you better rates with the combined usage being factored in.

The table below from the Energy managers Association summarises the main benefits of each (with flexible covering both basket and flexible procurement).

Table: Source- Energy Managers’ Guide to Electricity Procurement Planning the Procurement Strategy

One of the biggest things you need to consider when deciding on the right product for you is timing. When purchasing energy, markets can fluctuate on a regular basis. When the market is low, it would always be advisable to lock out the contract for as long as possible which would make a fixed contract a lot more desirable. However, if you happen to be procuring your energy during a market high, it would be more advisable to purchase a small amount of energy, spreading the risk over the contract- therefore the flexible option is advisable. The graphs below give a basic illustration of the differences.

Here at Utility Team we are experts in this field, we talk to each client to understand their situation and then explain the options available to them, with the pros and cons of each one. If you would like to discuss your options, please contact us on the following details:

Phone: 02476 997901 / email: enquiries@utilityteam.co.uk

 

Article written by: Holly Smith, Key Account Manager