It is hard to determine the best energy deal; most companies rely on advice from their energy consultants. These consultants have an important job, and you should ensure that you are putting your trust in the right people. Furthermore, understanding your energy tariff is fundamental in ensuring you aren’t paying more than you should be for your energy, such as hidden costs levied by your consultant.
Find out about fixed and flexible energy contracts, and advice on choosing a good energy consultant below.
Fixed and Flexible Tariffs
Consumers can choose between a fixed-rate or flexible energy contract, depending on their risk avoidance level. There are benefits and disadvantages to each, and it’s important for businesses to evaluate each before finalising their decision.
Fixed energy price tariffs effectively freeze the cost of the commodity elements of your energy requirements such as gas and electricity for an agreed period of time, meaning that the cost of each unit of energy will remain the same, regardless of what happens in the wider market. The contract usually lasts one or two years, however, this can be agreed for up to four. Anything longer than two years is unlikely, as the risk associated with fixing prices for such a long time without accurate foresight into what will happen in the markets is deterring. The biggest benefit to fixed tariffs is budget certainty due to fixed contract lengths and fixed pricing. However, fixed energy contracts are not the best option for every company.
Limitations of fixed energy prices revolve around risk. The first issue is timing your contract right. If you agree on your fixed energy contract on a day when wholesale energy prices are high, you are then committed to paying these elevated prices for the remainder of your contract. Therefore, customers who fix their prices at a cheaper time will be in a better financial position.
Additionally, energy suppliers include in the bill, risk premiums, to account for the risk of volume variations, credit risk, and non-energy charges such as delivery, distribution, green energy taxes and levies. These premiums are sometimes opaque and grouped into charges that are not broken down for the customer. Longer fixed term contracts often incur higher risk premiums due to the potential variations in predicted non-energy costs. Furthermore, a fixed energy price contracts does not ensure that all costs are set in stone. The majority of suppliers include clauses in their terms and conditions, stipulating that they are entitled to pass through any increases in non-energy costs to customers. Therefore, it is fundamental that customers are made fully aware of these charges during contract negotiation so that they can be included in their energy budgets.
Flexible energy price contracts allow customers to purchase wholesale energy in trenches throughout the length of the contract, so they can choose when and how much energy to purchase. This also allows the consumer to lock in commodity costs at any point during the contract for part of all that period. The energy that is left unhedged changes with the market. This provides the scope for certain costs to fall if the market price drops over the course of the contract. Of course, the same applies if the market prices rise meaning the end-user’s costs will increase. The biggest benefit here is being able to take advantage of the market when the prices are at their lowest and most attractive, but there are also disadvantages.
Flexible contracts are predominantly suitable for heavy energy consumers and SME’s who require significant tradeable volumes to ensure they can access the wholesale market at reasonable prices. Companies that decide not to go through an energy broker or consultant, need detailed knowledge of the energy market and industry expertise in order to make complex purchasing decisions. One poor decision can have an irreparable and substantial impact on cost, which is a risk you avert when using a fixed price tariff. Flexible tariff consumers are exposed to the risks associated with the volatility and unpredictability of the energy markets. However, these risks can be managed by a good energy broker or consultant.
Furthermore, prices will also be subject to the supplier’s premium. Day ahead energy purchasing without an efficient hedging strategy carry a premium price as is left open to higher commodity prices.
Are you trusting the right consultant?
As a whole, the energy market is opaque and volatile. Plagued with smoke and mirrors, it’s hard to navigate your way to choosing the right consultant. It’s often difficult to tell who’s working with your best interests at heart or with theirs. Third Party Intermediaries (TPI’s) operate between energy suppliers and non-domestic consumers, providing impartial advice on procuring and managing energy. Essentially, they inform businesses where to find the best energy deal and how to manage their energy most effectively. However, more often than not companies are exposed to sub-optimal, unclear, and misleading advice and billing by TPI’s.
TPI’s all work in different ways, and this isn’t always made clear. Some work independently and offer whole of market review with all suppliers, whilst some work for a chosen selection of suppliers. Therefore, this impacts the range of deals offered to the company and ultimately means that end-users aren’t necessarily offered the best deal for their requirements. Furthermore, TPI costs can be unclear. They can either be paid directly, or indirectly through a supplier. Some TPI’s even go as far as to suggest they are ‘free’ because they are ‘paid by the supplier’. However, this is misleading, as the supplier will add fees onto your charges to cover the cost. Note that you will always pay in some form. These indirect payments may incur additional, and often hidden fees, levied by your supplier, which are rarely broken down on your bill. This leaves you uncertain of what your businesses money is paying for.
An Ofgem study revealed several issues with poor consultancy from TPI’s. These included the gross misrepresentation of TPI roles, supplier offers, and fees, misleading information on new contract details and fees, and extremely limited access to accurate information detailing who the TPI represent and how they are paid. The two biggest areas which are notoriously ambiguous are supplier coverage and commission levels. This opens up further questions surrounding TPI bias.
Energy Live News questioned TPI ethics, when it revealed that “customers are not always being made fully aware of what commission rates they are paying, and in some situations, business customers have been misled over who is paying the broker”. Others have complained that “TPIs led consumers to believe they would be signing up to lower prices, only to find they had committed to a higher cost arrangement”. Poor consultancy and poor management can be devastating, causing substantial damage to businesses finances. Having a trustworthy, transparent, and customer-centric consultant is fundamental to business efficiency, strategy, financial stability and growth.
The customer should always come first. EnergiMine are not a typical TPI. They are shaking up the stagnant and archaic energy market. The EnergiCore platform delivers smart energy management by utilising cutting edge technology, which removes the inefficiencies addressing the lacking transparency. Now innovative and pioneering technologies can offer businesses trustworthy, clear, fair and transparent advice.
Avoid opaque, profit-hungry, and sub-optimal consultants. Visit www.energicore.co.uk today to find out how we can help your business.