Energy savings start with understanding the market
Knowing what is driving the energy markets can provide a real competitive advantage for energy buyers. For example, in 2022 during the Energy Crisis, buying your electricity supply contracts on the wrong day could have cost 400% more, and settling Winter 2025 energy contracts on 1st Jan 2025 would have cost you c.30% more than settling today.
Energy contracts can be sourced up to 4 years ahead of delivery, so understanding the futures markets and backwardation opportunities in the market can also offer a significant advantage. For example, those that bought gas long during COVID lockdown in April 2020 were paying c.1p/kWh for gas, for up to 4 years, whilst others paid as much as 25p/kWh throughout that period, for the same commodity!
Despite this and the price diversity in the wholesale energy markets, it is surprising to know that most companies still select a set day or month in the year to settle their electricity and gas supply contract renewals.
Access to reliable market intelligence and AI can help us understand how weather conditions, gas storage, renewable output and geopolitical factors can affect market volatility. These provide key indicators on when to avoid buying or settling your energy contracts. Therefore, understanding the energy market drivers is imperative to obtaining best value.
Which supplier contracts will best suit my business
It’s not much fun being stuck on a long-term uncompetitive contract with unfavourable terms that will eat into your business profits. However, those in the know can find many ways to avoid paying more for their energy bills than necessary.
Some suppliers will bundle all the cost components within their invoices, making it difficult to identify if the suppliers have hidden risk premiums or if they have been transparent about broker fees. These can be avoided when opting for transparent contracts.
For almost 15 years, energy suppliers have reserved their best tariffs for the UK’s largest energy-intensive users who represent 1.5% of UK organisations. The introduction of energy buying groups with adequate volume purchasing power now allows smaller and medium consumers to access these more flexible, economical and less risky industrial tariffs that typically provide more than 10% cost benefit against traditional small business fixed tariffs.
Flexible procurement can reduce risks by providing a price cap to protect against the markets rising and allows extra savings if the markets fall, so it makes sense to explore this option.
Can my business claim rebates for some of the charges in my bills
For large and medium-sized businesses, it is worth investigating ways to reduce your carbon taxes and VAT by checking if government exemptions will apply to your manufacturing process or your specific types of business operation, because these offer guaranteed long term savings.
Ten safety rules to consider for your energy procurement strategy
To ensure a successful energy procurement strategy please consider the following:
Use a reputable energy consultant:
Choose a consultant with extensive industry knowledge, transparency, integrity, and a commitment to client care to help you navigate the complexities of energy market trends and risks.
Avoid fixed-term contracts in a downward market
Signing a fixed-term contract when prices are falling can lock you into higher rates. Instead, consider flexible contracts that allow you to access the optimum wholesale market prices at any time.
Ensure transparent procurement fees
Make sure procurement fees are transparent and be wary of hidden extra fees (e.g., share-of-savings). Transparent fees help you understand what you are really paying for your energy procurement services.
Do not grant signing authority
Do not grant anyone the authority to sign energy contracts on your behalf. Retaining control over contract signing ensures that you have sight of the supplier’s contract terms and you are fully in the driving seat at all times.
Avoid restrictive agreements
Avoid agreements that restrict you from liaising with other brokers. Having the flexibility to benchmark or work with multiple brokers can help you find the best deals.
Identify onerous clauses
Identify and avoid onerous notice clauses or roll-overs in supplier or broker contract terms. These clauses can lock you into unfavourable terms and make it difficult to switch energy suppliers or energy consultants.
Navigate credit checks
Be prepared to navigate energy suppliers’ credit checks and consider avoiding supplier premiums. Understanding the credit requirements of suppliers and your options if you fail credit.
Expect comprehensive reports
Expect a comprehensive report of the competitive tender results, including both fixed and flexible offers. Detailed reports provide transparency and help us make informed decisions.
Avoid supplier risk premiums
Avoid supplier risk premiums by choosing suppliers with a stable financial standing and a good track record. Reputable suppliers are less likely to impose hidden risk premiums and volume tolerance issues.
Explore government tax relief and energy support schemes
The UK government has recently announced support schemes for certain businesses sectors to help the UK convert to a greener economy whilst remaining competitive, so it’s worth checking to see if your business qualifies.
How we can help
For companies who wish to develop an energy procurement strategy, Valpak are providing a series of interactive Energy Webinars throughout 2025 that will attempt to demystify the complexities of the energy procurement markets.
The Energy Webinars will be delivered by our strategic partners, Energy Bubble, whose management team were pioneers of energy procurement in the UK. They were instrumental in developing the commercial energy broker markets and have promoted the energy supplier’s products since the markets opened, and they are happy to share their tips with you.
Alternatively, we are hosting a free “Managing Energy Reporting for ESOS & SECR” webinar on 14 October, which will discuss and explore the requirements of ESOS and detail the actions that need to be taken. Visit our events page to book online.
