The timing of contracting is the single biggest influencer on the commodity price a client will pay. Some consultancies may claim to drive a “hard bargain” with energy suppliers. However, although we do negotiate hard on supplier margins, this represents a maximum of 5% of the bill and therefore there is a marginal benefit to be achieved; especially if balanced against the important issue of also expecting effective customer service from your supplier.
The non-commodity charges, or the taxes and levies mandated by government make up 55% of the bill. This leaves the 45% of the bill that is directly attributable to the commodity price and where the biggest immediate price advantaged can be achieved. However, with growing market volatility the timing of contracting and the length of the associated contracting period is often critical. What might seem like the right price in the short term can expose you to longer term risk. Our focus is on achieving the right balance between risk and reward and advising on the optimum time to contract.
Energy suppliers will contract up to 5 years out (which is if the market price is liquid). With historical market cycles averaging 5 years, we focus on getting the length of contract right. Overall, our experience shows that “you must be in it to win it”. Those organisations that choose to only contract for 1 year will not benefit from the opportunity to forward buy at the bottom of the market or optimise the best price over the duration of a much longer contract. We will always focus on understanding where we are in the market cycle and propose a strategy that best takes advantage of it.
To find out more and speak to a member of our Procurement & Risk Management team, contact us on 01253 785291 or complete the callback form below.