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The importance of forward planning in a volatile energy market
Unlike other operating expenses that follow more predictable inflation levels over time, energy is a unique market driven commodity. That means it requires longer forward planning and analysis of your options.
So, what does optimal planning look like?
✔️ Engage an energy market expert such as your SES Account Manager 18-24 months ahead of your contract expiry
Leaving your energy contract discussions until 6 months before your contract expires will not give you enough time to adjust your budget in a volatile market.
Many of our clients that have worked with Sustainable Energy Solutions through several renewal cycles are having portfolio discussions with their internal stakeholders 18 months in advance of their current contract expiring. For some clients, we are locking in contracts for 2025/26.
✔️ Understand your procurement options in advance
Your business may want to consider forward buying, progressive purchasing or contract renegotiations. It’s important to review your options with your broker well before any market swings take place. A good account manager, will come to you with options that suit your energy portfolio.
✔️ Be open to locking in a contract earlier than expected if the right opportunity arises
At SES we are always monitoring the market so we can act swiftly when these opportunities arise. Taking advantage of these windows will require quick action at your end – so get your Board on board. Because of the continued volatility of the wholesale energy market, contract offers can sometimes be valid for only 24-48 hours. This week, we’ve seen cases where energy retailers have seen the market beginning to rise and have withdrawn offers only a few hours after we received them. This is why it’s so important to keep your decision makers informed so that your business is well positioned to sign-off within the contract validity.
✔️ Factor in projected increases in energy costs early to minimise surprises
In 2022, the energy market saw unprecedented volatility. Energy rates went from 10-year lows to record highs within a 12 months period. Some businesses were caught out by fast and large market swings and were facing 300% increases less than 3 months away. Consider how your business will absorb substantial increases at short-notice?
✔️ Read the fine print of your energy contract as penalties are costly
As the cost of energy has risen sharply over the past 12 months, contract penalties are on the rise. Part of your forward planning should include reviewing retailer terms and conditions ahead of time so you are aware of any penalties and how to avoid them.
✔️ Keep a close eye on your bills and monitor your energy consumption
More often than not, the contract negotiations are completed by senior decision-makers and the bills are only seen by accounts. Discrepancies in consumption are therefore not getting picked up before penalties are imposed. Some retailers have added a graph to their bills so enable you to see how you’re tracking against your contracted volume each months. Otherwise provide access to their online portal where you can login and view historical data and bills. It’s essential that someone in your business is tasked with the responsibility of monitoring energy consumption not just bills.
Ready to forward plan?
Chat to our team of experts by filling out our contact form or calling us on (02) 9371 4153.
*Disclaimer: This article is general information only and does not constitute financial advice. Electricity and gas commodities are volatile markets and prices vary daily.
