14 Sep Energy Prices Soaring – Why Businesses Should Be Thinking About Securing Now
The UK energy market has once again reminded businesses just how quickly costs can change.
Over recent weeks, wholesale energy prices have experienced increased volatility, with geopolitical uncertainty, concerns over global gas supplies and developments in the international LNG market all contributing to upward pressure.
For businesses already dealing with rising operating costs, this creates an important question:
Is now the right time to secure your next energy contract, or should you wait in the hope that prices will fall?
At Energy Smart Consultancy, this is a conversation we are having with businesses every day.
Our advice is not based on trying to predict the market perfectly. Instead, we look at the market conditions, the risks facing businesses and the prices currently available before recommending the most appropriate approach.
Why have energy prices been rising?
Energy prices are influenced by far more than what is happening in the UK.
Wholesale gas and electricity markets are affected by international supply and demand, geopolitical events, weather conditions, LNG availability, gas storage levels and changes in energy infrastructure.
This means that an event thousands of miles away can ultimately have an impact on the price a UK business pays for its electricity or gas.
Recent geopolitical developments have once again demonstrated how quickly the market can react to uncertainty.
And because gas remains an important influence on electricity generation and pricing, movements in the wholesale gas market can also feed into commercial electricity costs.
This is why businesses need to look beyond today’s price and consider the potential risk of waiting.
“Should we wait and see if prices come down?”
This is probably one of the most common questions we hear.
And the honest answer is:
They might.
But they might also go up.
Nobody can say with certainty where wholesale energy prices will be in a week, a month or six months’ time.
This is precisely why energy procurement should not be about trying to pick the absolute bottom of the market.
Instead, it should be about managing risk and making an informed commercial decision.
If prices fall after a business has secured its contract, it is easy to look back and think that waiting would have been better.
But if prices rise substantially, the business could find itself wishing it had taken the opportunity to secure when the market was more favorable.
There is no perfect answer.
What matters is making the decision based on the information available at the time.
Why do Energy Smart Consultancy sometimes recommend securing early?
When we recommend that a client considers securing their energy contract, there is a reason behind that recommendation.
We are constantly monitoring market conditions and looking at the factors that could influence future energy costs.
That includes considering:
Current wholesale market prices
Forward market pricing
Market volatility
International gas supply
Geopolitical developments
Gas storage levels
LNG availability
Network and non-energy costs
The client’s consumption profile
The client’s appetite for risk
The importance of budget certainty
We then use this information to help our clients make a decision. We don’t claim to know exactly what the market will do next.
Nobody does.
What we can do is help businesses understand the risks and opportunities that exist today. Our advice isn’t simply about getting the cheapest price
This is an important distinction.
When businesses work with Energy Smart Consultancy, our objective isn’t simply to find the lowest headline unit rate.
A low unit rate doesn’t automatically mean a business has secured the best overall deal.
There are many other factors that can affect the total cost of an energy contract, including standing charges, network costs, capacity or availability charges and other non-energy costs.
The right contract needs to be considered in the context of the individual business.
For some businesses, the priority may be achieving the lowest possible cost.
For others, budget certainty and protection against future market increases may be more important.
Our role is to understand that difference.
Why should businesses listen when we recommend securing?
We understand why some business owners can be skeptical when an energy consultant recommends securing a contract.
They may wonder:
“Are they just trying to get me to sign a contract?”
At Energy Smart Consultancy, we believe the answer should be demonstrated through our approach.
If we recommend securing, we should be able to explain why.
We should be able to show what is happening in the market, what risks we believe exist and why we believe the available pricing represents an opportunity worth considering.
Equally, if the market conditions suggest that waiting could be beneficial, we should be prepared to say that too.
That is what consultancy should be about.
It’s about advice – not simply selling a contract.
Nobody has a crystal ball
We will never tell a client that prices are definitely going to rise.
Equally, we won’t tell them that prices are definitely going to fall.
The energy market is too complex for that.
What we can say is that when markets become increasingly volatile, waiting for the perfect opportunity can carry its own risks.
Sometimes the smartest decision isn’t trying to achieve the absolute lowest price.
Sometimes it is securing a price that gives your business confidence and allows you to budget effectively.
Energy costs can have a major impact on your bottom line
For many businesses, energy is a significant operating expense.
Whether you’re running a manufacturing facility, warehouse, office, restaurant, retail premises, care facility or another energy-intensive operation, an unexpected increase in energy costs can quickly put pressure on margins.
Having greater certainty over future energy costs can make it easier to forecast expenditure and plan your business.
That’s why we believe energy procurement should be treated as an important part of financial planning rather than something to deal with when a contract is about to expire.
Don’t leave your renewal until the last minute
One of the biggest mistakes businesses can make is waiting until their existing contract is almost finished before looking at their options.
Starting the process earlier gives you more time to:
Monitor the market
Compare available options
Review different contract structures
Understand the potential risks
Consider when to secure
Avoid making a rushed decision
It also means you’re not forced into making a decision simply because your existing contract is about to end.
Our advice: don’t try to time the market perfectly
The events of the last few weeks are another reminder that energy markets can change quickly.
For businesses, the question shouldn’t necessarily be:
“Can we get a cheaper price if we wait?”
It should be:
“Is the potential saving worth the risk of waiting?”
That is a very different question.
At Energy Smart Consultancy, we help businesses assess that risk and make informed decisions based on current market conditions.
We don’t have a crystal ball.
We don’t pretend to know exactly where energy prices will be tomorrow.
What we do have is market knowledge, experience and the ability to analyse the options available to your business.
And when we tell a client that we believe it is the right time to secure, there is a reason behind that recommendation.
Don’t leave your energy costs to chance.
If your business is approaching renewal, or you simply want to understand whether current market conditions make it sensible to secure your future energy costs, speak to Energy Smart Consultancy.
We’ll look at your situation, explain the market and give you our honest view on what we believe you should do.
Energy Smart Consultancy
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