Knowing your energy contract is up for renewal is one thing; getting the best deal on your energy procurement is another.
With many contracts scheduled for renewal this autumn, energy contract renewal will be high on the to-do list for energy managers and procurement teams across the country. A big part of this will be getting to grips with the constant changes in the utility markets and working out the best time to place energy contracts.
But despite all the best intentions to renew your contract in plenty of time, there is often the risk that other day-to-day priorities take over, leaving energy contract renewal until the last minute. The problem with this approach is that opportunities to make significant savings are likely to be missed.
So, what can you do to make sure that you are prepared for your next energy contract renewal? Here are three steps to help give you the right approach in the year ahead.
Step 1 Don’t let yourself be ruled by your contract renewal dates
Businesses are often unaware that they do not need to wait until the end of their current contract before signing up to a new contract. Your energy rates can be 'locked-in' over 12 months before your contract expiry date. This means you can take advantage of dips in the market - even if you’re not coming to the end of your current contract. With energy prices currently at a near record low, now might be a good time to do exactly that.
Timing and market knowledge is vital for you to secure lower wholesale energy prices. If you start the renewal process early, you have more time to assess market prices, understand the impact of current market conditions and evaluate the different purchasing strategies and contract structures available to you.
However, it is important to remember that the range of third party charges such as distribution (DUoS) and transmission (TNUoS) charges, together with charges to support growth of renewable energy, now account for up to 50% of delivered energy costs. Working with an energy partner who defines these cost elements within the negotiations process is vital to help ensure that you are not faced with any nasty surprises on your energy bills.
Step 2 Be clear on the dates that your current contracts end
Issues can often occur if you don’t take action before your energy contract termination date - the date when you can either renew your contract or cancel it and move to a different supplier.
Typically, if you don’t renew or switch by the termination date, you will be placed on a default 'out of contract' rate. This will almost certainly be higher than what you should be paying for your energy.
The best way to avoid these 'out of contract' rates is to terminate your existing contracts before the supplier’s termination notice deadline. This is usually between 30 – 90 days (but it does vary from supplier to supplier).
Step 3 Have a structured plan in place
Prices in the energy market are volatile. If your approach to your energy contract renewal is reactive, it is much harder for you to implement an effective and well-informed procurement strategy.
One approach that you could take is to identify a top price and lower price that you are prepared to pay for your gas and electricity contracts. Prices can then be tracked in line with these upper and lower limits. If the energy market triggers either limit, you can then review whether an early renewal is a viable option or to wait. Either way, you have the market intelligence to make an informed decision, aligned to your strategy and business requirements.
Businesses can reduce risk and costs by outsourcing energy procurement to a specialist. Benefits include:
- Access to in-depth market expertise you may not have in-house.
- Hassle-free management of supplier contracts.
- Advice on reducing consumption and minimising energy costs.