Blend and extend contracts involve agreeing a term extension in return for an existing contract rate reduction.
Blend and extend products have been offered by a handful of UK energy suppliers for a number of years, however they became more commonplace during 2023 when wholesale markets trended downwards in the first half of the year.
Businesses who secured energy contracts during peak pricing periods of the gas price crisis are now looking for short-term solutions from suppliers, who are limited in their ability to help.
This is because suppliers also bought the energy they are supplying to their customers during a peak period. Suppliers procure “blocks” of energy if they don’t generate it themselves. That may include importing it into the country. This then determines the cost of supplying that energy to the end user, which could conceivably have cost three times as much in 2022 as it would in 2023.
TOP TIP: Read more about how the energy market works in our dedicated whitepaper to understand why a supplier would struggle to lower your price mid-contract.
Blend and extend as a solution
The Federation of Small Businesses (FSB) researched the impact of peak pricing in May 2023 and revealed as many as 93,000 small firms were in danger of closing due to their energy costs. The FSB called for suppliers to offer blend and extend products as one solution.
Many suppliers have brought blend and extend offers to the market, including British Gas, Engie, EDF and Drax.
Procure Smart has engaged with suppliers on these products, which appear to be sensible solutions to those locked into peak prices.
However, many of the rate decreases from the contract extensions on offer were negligible and available only to niche sections of the market.
As an intermediary in a range of sectors, Procure Smart has witnessed the difficulties suppliers have had in recent years. Simply bringing products to market through historic levels of volatility has proven difficult.
If a supplier procures a quantity of a commodity to service a three year contract and lowers the price in line with market conditions after year one, it will make a major loss on the remaining two years of that contract. Extrapolate that scenario across a supplier’s full customer base and it is insolvent. This is why the UK lost 28 energy suppliers in 2021 alone.
Understandably, suppliers will receive little sympathy from the businesses mentioned in this blog post. Many suppliers have navigated the turbulence with aplomb and walked away with record profits as a result, whilst SMEs are struggling to keep the lights on through no fault of their own.
Help is always available
While not all suppliers are publicly promoting blend and extend products, Procure Smart helps businesses understand their supplier’s policies and approaches to challenges. It always helps to have a market expert in your corner for negotiations and resolutions.
Likewise, these products may only offer a slightly reduced rate, in which case you should work with an expert to conduct the requisite cost analysis to determine whether blend and extend is the right way to go.
We work with many suppliers and intermediaries across the UK energy industry. If you would like guidance or advice on how to deal with your business’ energy strategy, simply complete the enquiry form on this page and we’ll be in touch.