Demystifying Flexible Energy Contracts: A Guide for Your Business

Energy BuyingEnergy News 14th June 2024

As a business owner, your goal is to see your business flourish financially. However, this isn’t just about increasing revenue, it is also about finding ways to save costs. One area for this concern is energy consumption.

Energy consumption presents a significant area where savings can be made.

How do you plot the right path to make sure that you not only save money in the long run but try and achieve this in the most green, eco-friendly possible? To make it even more complex, your business is unique and has different financial considerations and energy needs, which is a crucial fact that you have to consider.

We will guide you step by step into answering your curiosities but first, you ought to take a look at what Flexible Energy contracts are and how they work.

What are flexible energy contracts?

Knowing what flexible energy contracts are is a good place to start to get into details about energy saving. To put this simply, flexible energy buying or flexible energy procurement is a dynamic approach to managing energy costs. This is a great tool used for businesses that want to confidently adapt to the market conditions, demand patterns, and the availability of renewable resources, and gives you more control over your energy costs.

At its core, flexible energy procurement is all about going into an agreement with energy suppliers and being provided with more flexibility in terms of pricing structures, contract durations, and sourcing options. It offers your business greater control which then effectively helps with cost optimisation, enhances sustainability, and navigates the complexities of the modern energy landscape.

For your business energy, you will most likely be on a Fixed Energy contract. This works by charging you a set rate per unit of energy, measured in kWh, for the duration of your contract term. It’s important to note that, despite having a fixed rate per unit this doesn’t mean your total charge on your bill will be the same each month, this will change depending on the energy you are using. It’s the price for kWh that is fixed. There is now a way for your business to have more choices when it comes to energy purchasing. Lumina Flex is our in-house, flexible energy purchasing solution that will enable you to manage and reduce your energy costs more effectively.

Flexible Procurement Vs. Fixed Contracts

To some, following a fixed contract with fixed-rates options seems a much simpler and less complex option which is why they opt for this instead. So why bother with the more complex option? Let’s look at a comparison.

Fixed

• Shorter buying window – most customers renew up to 6 months before their contract ends
• You can buy all your energy in one go
• Risk of securing Fixed prices during market spikes
• Risk of missing out on lower market prices
• Volume tolerance levels apply to your usage alone

Flexible

• Longer Term Buying Window – flexible purchasing can begin from 24 months in advance
• Increased Market Opportunity
• Avoid market spikes
• Take advantage of market lows
• Benefits of a group Basket
• Lower Supplier Management Fees
• Greater Volume Tolerance protection in a group basket

The reason why others love having flexible energy as part of their business strategy is because of the potential for savings and risk management. With a flexible contract, you get the opportunity to take advantage of the advantageous market conditions that enable you to get lower energy prices reducing your total cost.

With a flexible contract, you have the opportunity to take advantage of favorable market conditions, potentially securing lower energy prices and reducing your overall costs. Moreover, by actively managing your energy procurement strategy, you can mitigate the impact of market volatility and avoid getting caught off guard by sudden price spikes.

How Flexible Energy Contracts Work

This flexible buying approach is often restricted to businesses with large usage or multiple locations, however, energy solutions providers offer a solution called the ‘basket’. Here, energy volumes are grouped from customers of all shapes and sizes into a ‘basket’ to maximise their value and to be able to get the best terms from suppliers. A basket’s main point is to be able to make a larger number of trades on the combined volume rather than for a single customer.

Here’s a recap of what joining a basket and flexible energy procurement strategy offers:

• Market Monitoring – This is essential as a lot of factors can influence energy prices. This involves tracking factors like supply and demand dynamics, price fluctuations, regulatory changes, weather forecasts, geopolitical events, and other factors.
• Risk Analysis – As this one suggests, keep in mind that there will be risks like any business venture has to be able to ensure optimal performance.
• Understanding Your Energy Needs – getting some help on your flexible energy is a great choice for you to have some guidance when it comes to understanding and catering to your energy needs.
• Flexible buying with budget certainty – Since this is not an all-in-one purchase, you can snag all the best deals at their lowest prices and help maximise market opportunity with an annual entry point for new customers.
• Enhanced Volume Tolerance Protection – this specifically is for the basket solution that enables you to have greater protection as the volume tolerance applies against the group basket volume.

Are Flexible Energy Contracts worth it?

Of course, it is! With this, you can reap several benefits for your business like mitigating risks like energy price fluctuations, regulatory changes, and supply disruptions. You are also open to more buying opportunities compared to short-term strategies or a Fixed-price contract where all energy is purchased in one go. If your business is also on the lookout to incorporating renewable energy sources like solar, and wind power, a flexible energy contract can assist you in going for green electricity and gas.

In conclusion, flexible energy contracts offer a wealth of opportunities for organisations and businesses looking to take control of their energy costs and minimise risk.
With a good flexible energy purchasing solution, you are sure to get all these benefits and your money’s worth.

If you’re interested in finding out more about our own flexible procurement option, Lumina Flex, please reach out to our team using the form.