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How do you manage your energy costs? We explain the options

Depending on your business’s appetite for risk, there are a number of options designed to help you manage energy costs.

The vast majority of businesses have a set budget for energy use, and exceeding that budget can cause difficulties. But with energy prices looking more volatile, managing your energy costs is more important than ever.

One way of doing that is through energy efficiency – but that will only affect one part of your electricity bill.

How is your bill made up?

As your bill will show you, you pay the wholesale energy cost – which is the current market price of the electricity you use. But you also pay third-party costs.

These costs are significant and relate to the cost of maintaining and investing in the electricity generation and transmission network. Right now, they add up to 60 per cent of your total electricity bill.

The Government has introduced some charges as part of its plans to ensure the UK reaches its carbon reduction targets. There are also charges dedicated to operating and maintaining the country’s power distribution system (National Grid). You can find the definitions for these, and other, charges in our simple infographic.

There are a number of ways you can manage these costs:

Fix your energy costs with a single contract

This is where you fix your unit cost for the contract term. You know what you’re paying up front for each unit of electricity you use.

Fixed contracts have several benefits. Greater security means your energy payments won’t fluctuate (unless your usage does), there’s less exposure to market volatility and unexpected budget shocks, plus you have more control over your budget, making it easier to manage.

Take more risk with a pass-through contract

Many businesses with a higher appetite for risk see great benefits in pass-through contracts where energy costs are fixed but you pay for TPCs. These can fluctuate but you’ll know what you’re paying as they’re itemised on your bill. So, they benefit from peace of mind about the cost of the wholesale energy, but stand to benefit if third party charges fall (or suffer if they rise).

Flexible contracts

Having a flexible contract is a little bit like playing the stock market; you have to be aware prices can go up and down, so you buy more energy if you think the price is low and it’s going to rise. Some energy providers offer a dedicated trading desk to keep you informed so you can make informed purchasing decisions.

The benefits of these types of contract mean that you control when and how you buy electricity throughout the contract term, with the ability to buy in tranches of months, quarters or seasons. It can also save you money by taking advantage of wholesale price movements and buying in tranches when market prices dip.

Risk management products

Whichever level of risk you choose in your energy contract, effective risk management can give you the power to control wholesale costs by managing their risks and reducing exposure to volatility and unexpected budget shocks.

We believe in making energy simple; which is why when we work with you to manage risk, it is throughout the lifetime of your contract. We build, monitor and manage a tailored risk management strategy that helps control your energy purchasing risks, and your energy costs.

If you’d like to find out more about controlling your energy costs use our contact form to get in touch.

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