Households and businesses around the UK will welcome news that delivered energy prices are set to drop over the summer. But the news has been coupled with a stark warning over long term prices and will lead businesses to consider their usual procurement strategy with regards to their energy contract term.
Wholesale electricity and gas markets have now returned to somewhere near their pre-gas price crisis levels. But this position is muddied by ongoing geopolitical instability and a lack of supply security around Europe. That means suppliers’ available prices are still significantly higher than they were before the crisis.
The UK is taking action to dampen its net import position on energy generation and improve security, but this will take years to complete. In the meantime, market volatility will continue plague homeowners and businesses alike.
The energy contract term dilemma
Like all variable markets, the objective is to buy as much as possible whilst the price is low. One benefit of procuring energy is that the goods in your contract do not expire. That means you can buy as far ahead as a supplier allows you to.
Energy suppliers are not naïve. They know the market better than anyone and will build future price projections into the deals they offer you. However, buying during a dip will always result in a worthwhile saving.
The key here is to weigh up a balance between your business’ operations and the terms offered by suppliers. Perhaps you’ll be moving premises in the next two years, so a three-year energy contract term would not be suitable. Or perhaps you have always procured in 12-month chunks and are now wondering what prices will be like in one year.
Don’t look at unit price in isolation
Often, longer energy contract terms are more expensive than shorter, 12 or 24 month terms. But you must also consider what prices will look like in 12 or 24 months when you will need to reengage with the market and weigh up the big picture.
The latest news suggests that the UK is in for more pain over winter 2024/25. As such, a “better the devil you know” approach is certainly a strong prospect for those procuring their business energy this summer.
Many businesses prefer shorter terms, in line with usual procurement practices. But a shift in strategy to a longer term based on the information available could prove to be your business’ secret weapon in coming years.
Get help to make the right decision
Energy market Third Party Intermediaries (TPIs) are useful for more than simple unit rate comparisons. At Procure Smart, our team boast decades of experience procuring energy and predicting market conditions. Many helped businesses navigate the gas price crisis and can provide valuable insight into supplier behaviour.
We offer no-obligation, free quoting and comparison services; as well as free advice on the right energy contract term for your bespoke needs.
The latest news and price cap reduction can be boiled down to one simple question: is now the right time to procure a longer business energy contract term? We can help you reach the right answer for your business.
