Energy Market Prices and Contract decisions during Covid…
At Direct Power we realise UK businesses have lots of challenges and a new normal to adjust to. Whilst we all struggle to adapt to our new circumstances, we want to highlight some good news that has come out of the crisis. Thanks to rock bottom global demand for commodities we are experiencing rock bottom commodity prices. Securing your electricity or gas contract now can help your energy budget going forward and can also help keep the UK economy out of this slump: win-win! We all have our part to play in getting back to work, so it helps when you can accomplish this goal whilst securing cheaper energy costs.
Currently there is an opportunity to secure competitive energy prices, but it is a shrinking opportunity. Two key factors are driving the pressure for customers to act promptly to take advantage of the situation:
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- Suppliers becoming more risk averse.
- Commodity prices are currently low and are expected to climb as lock-downs are eased.
All Suppliers are increasingly selective about the business they will now quote for. Many suppliers:
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- Will only now quote existing customers, as they do not want to take on any new clients at this time.
- Limit the contract duration they will offer to the short term only.
- Limit the contract start dates they will quote for, e.g. only quote for contracts starting in next three months.
- Decline to quote any businesses in the certain industries, e.g. tourism, hospitality.
All contracts are subject to credit check, and all suppliers now have higher standards for passing credit check. I am observing more clients fail credit check than ever before, including customers failing for the first time.
All suppliers require their clients to make efficient contract renewal decisions, and multiple price refreshes are not an option whilst supplier systems and staff are stretched by remote working. Clients are being primed to review prices and return contracts same day to improve efficiency of already disrupted working routines.
In-spite of the above, there are multiple suppliers able to offer you competitive prices, and in many cases substantial savings at this time. As a rough guide, prices tend to increase 1-2% for each additional year added to the contract term. So a 24 month deal will be a couple percent more than a 12 month deal and so on.
The price you see on your electricity bill is approximately 35% commodity costs set by the supplier, and 65% non-commodity costs, NOT set by the supplier. Commodity costs account for the largest single cost component, so it makes sense to secure your contract whilst this cost component is the lowest seen in years. As lock-downs around the world are eased, global energy demand will increase and put upward pressure on commodity costs. This makes it a good opportunity to lock in rates whilst commodity costs are down.
Non-commodity costs are NOT set by the supplier. Many are set in advance so we know there will be upward pressure thanks to increasing non-commodity costs in the coming couple of years. Remember that when you add up all the non-commodity costs they account for around 65% of the bill, the lion’s share, thus off-setting the reductions in commodity costs. Still it is better to renew when commodity costs are lower than higher!
To summarise briefly: now is a good time to secure your 2020, 2021 contracts. You are the ideal candidate to take advantage of this moment if your business:
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- Has a good credit score.
- Can make a prompt contract decision and DocuSign a contract same day as receiving prices.
- Is happy with fewer, but better price options.
Get in touch with Direct Power today in order to secure your 2020 or 2021 renewal whilst prices are favourable. We look forward to helping deliver good news on your 2020, 2021 renewals during this crisis, and all playing a role in getting the economy going again!
