Short Term vs Long Term Contracts
What are the benefits of Short Term vs Long Term contracts? A snapshot graph of energy prices over any given period will show peaks and troughs as daily prices fluctuate to reflect the ongoing battle that typically affects energy pricing. From supply and demand due to our weather and our generation and supply infrastructure, to the value of other commodity prices and the actions of speculators, and from the geo-political landscape both here in Europe and much farther afield, to natural disasters and even armed conflict, energy pricing is fluid and extremely volatile.
Of one thing we can be fairly certain though – whilst prices might fluctuate on a daily basis, overall they are becoming more expensive and they are likely to continue to increase.
Some clients just want what appears to be the most inexpensive solution today – which would normally be a 1yr contract – and this is fine as long as prices haven’t increased in 12 months time when a new supply contract needs negotiating at the prevailing market prices at that time. As is often the case, prices offered to a client in 12 months time are usually dearer than those that were offered for a longer supply term 12 months ago – therefore the most inexpensive solution 12 months ago wasn’t the apparently cheaper 1yr contract, but the slightly more expensive longer term contract, because its’ prices were actually cheaper at that time than the prices available today, 12 months later. In our bespoke offers to clients we usually show a range of different suppliers and supply term options, however there are a number of questions we are typically asked at Torse when companies discuss their energy contracts with us:
"Are the prices fixed for the duration of the contract?"
Strangely the answer is both yes and no! All Suppliers Terms and Conditions of Supply permit them to pass on any increases in costs or levies imposed upon them during a supply contract. In fairness to suppliers this isn’t nonsensical. A supplier purchases sufficient energy to meet your agreed contract requirements. The price includes an energy component which is fixed, but the price is also made up of many other components including Transmission, Distribution and Use of System charges, Data Collector, Aggregator and Settlement charges as well as other Meter Operator associated costs and levies, all of which fall outside of the suppliers control. The cost of these services & levies continues to rise, and increases are imposed on all suppliers who may then have to pass these on to the end user.
"What if my consumption or pattern of usage is due to change?"
In some circumstances how much energy you use, or don’t use, can be important, in particular with regards to your chosen contract term and contracted consumption, so be sure to talk to us at the time of quoting if you are planning any changes that might affect your anticipated consumption.
"What contract term lengths are available and do all suppliers offer longer term contracts?"
Some suppliers offer supply terms of up to 5yrs duration, most only offer up to 3yrs duration and some only offer up to 2yrs. Some suppliers will also offer co-term end dates of specific duration to match the end date of sites already supplied by them or other suppliers. We’ll talk to you about the different options available to you at the time of quoting but please let us know if you require something specific.
We’ll always give you our advice and recommendations based on the offers we provide, but of course the choice remains personal, and will be based on among other things, your attitude to risk, the budgeting requirements of your business, and maybe even your peace of mind so the decision is ultimately yours to make.