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Buying in Bulk: Fixed Price Energy Contracts in Context
Learn about fixed price energy contracts in a new context and find out why staggered purchasing may be a better option.
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If you could buy a year’s worth of petrol for your car in one go,
would you be willing to do it at today’s pump prices?
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That’s what most businesses do with their energy… Fixed price energy contracts might give you some stability, but rarely serve you
best in the long run.
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Buying one, two, or three years’ worth of energy in a
single purchase is the default method for the vast majority
of UK businesses
But it’s a risky option.
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Obviously, fixing all at once is quite a gamble, as these are volatile markets and it’s impossible to be
sure when future prices will be at their lowest.
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Even more risky is leaving your renewal to the last few months of
your current contract. If you buy like this, you only have a short window
to track the market and can end up having to take a high price if the market doesn’t move in your favour
before you have to lock in.
Obviously, fixing all at once is quite a gamble, as these are volatile markets and it’s impossible to be
sure when future prices will be at their lowest.
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A better solution would be to stagger purchases over many months, to spread
your price risk across multiple purchases.
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A better solution would be to stagger purchases over many months, to spread
your price risk across multiple purchases.
By adopting this kind of “flexible” contract, you can
buy more when you judge the market to be weak and less when you think it is strong.
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You can still choose to buy a year or more at a time (if you are confident of the price benefit), but that becomes just
one of your options, rather than your whole strategy...
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Decision makingThere are numerous sources of data and advice available to help flexible buyers decide when the market is overvalued (and likely to fall), or when
it might be undervalued (and a good time to buy).
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Decision makingThere are numerous sources of data and advice available to help flexible buyers decide when the market is overvalued (and likely to fall), or when
it might be undervalued (and a good time to buy).
Deciding when to hedge, and how much, can seem daunting at first, but armed with a tailored risk management strategy, most buyers quickly find their feet (usually supported by an expert energy broker service).
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This year (2014), for example, prices fell steadily from January to July- leaving those businesses that purchased all their energy early in the year paying far more than those that held back and staggered
purchases into the summer.
Decision makingThere are numerous sources of data and advice available to help flexible buyers decide when the market is overvalued (and likely to fall), or when
it might be undervalued (and a good time to buy).
Deciding when to hedge, and how much, can seem daunting at first, but armed with a tailored risk management strategy, most buyers quickly find their feet (usually supported by an expert energy broker service).
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Bulk valueIf you stagger purchases, you won’t miss out on volume discounts.
Normally, the more you buy the lower the price, but flexible energy contract terms are based on the total volumes you expect to buy, thereby recognising
your full buying power.
www.energyteam.co.uk
Bulk valueIf you stagger purchases, you won’t miss out on volume discounts.
Normally, the more you buy the lower the price, but flexible energy contract terms are based on the total volumes you expect to buy, thereby recognising
your full buying power.
And if your own consumption is not enough to qualify for a flexible contract, there are
numerous consortium/basket deals that you may be eligible to join (via a broker or trade association)
whereby the individual buying decisions are managed for the group as a whole.
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Buying energy in annual chunks presents significant risk of over-paying. Now that you understand it in context, discover how
to manage energy price risk by downloading our eGuide:
Playing the energy lottery: How to manage your risk.
Download Now!
