The answer to every customer and TPI’s prayer….
I would be rich if I had a pound for each time a customer told me to get in touch with a refreshed offer each time the market moved. The market moves daily, hourly, minutely, second by second. Some of these movements are fractions of a decimal and others are big figures. Whilst no one knows how much a market will move, we all know that it does, and that movement, aka volatility, is here to stay.
It’s time to be proactive and not reactive to market movement.
Reacting to market movement on a retail/customer level is highly inefficient and costly. The market moves, prices rise or fall, the supplier reacts to the market, loads a new tradebook, enabling their sales team to issue refreshed prices. These are then shared with the TPI for review and comparison with other supplier offers, to then share with the customer, who then shares with their team in order to decide if they wish to proceed or not. There are so many links in this chain that the supplier has to inflate the price sufficiently to be able to honour the price long enough for the customer to respond and complete paperwork.
If the supplier can honour the price, they had enough risk premium included to match evolving market conditions. If the supplier can no longer honour the price, the market increased too much, and a refresh is required.
The more links in the chain, the more risk premium, the more the cost to service, the more the cost to serve. Reactionary approach to pricing is a costly approach to energy purchasing.
So, what can we do?
Time for an alternative, time for “Unity”. Unity is a first of its kind contract, which enables customers to secure a framework and then agree levels when the commodity team should purchase energy for them.
This is actually a very smart way to streamline the process, cut out the middleman, cut out the risk premium to deliver a fair and competitive price, reduce the administrative overhead, reduce the cost to serve and ensure a proactive approach to energy purchases.
If you asked me for my TPI wish list over the past two decades I would have asked for the suppliers to offer a contract that allowed my customers to secure their energy when energy prices hit certain pre-determined and mutually agreed levels. Think of this as a pre-approved “buy” orders. Such a contract would help the TPI, the supplier and the customer win in so many ways:
- Ensure the customer has a competitive price.
- Reduce the administrative overhead for customer, TPI and supplier, which helps to further lower the cost.
- Lower the cost to serve, no more re-quoting.
- Remove the need to time the market.
- Give smaller customers the same tool as those enjoyed by the largest consumers.
- Ensure fair, transparent and competitive customer pricing.
- Give the customer price flexibility but with the back-up plan of being able to convert to a fixed price for peace of mind at any time.
Well, this wish, and all the above “wins” became a reality with a first of its kind: the Unity contract. Customers with more than 300,000kWh gas consumption or 200,000kWh electricity consumption can now enjoy all these benefits.
The energy market is a liquid market, prices change minute by minute, and since the rate the customer sees on their contract and bill is made up of multiple sub-components, it is hard for a TPI and customer to keep track. Commodity prices are inherently volatile due to various factors: supply and demand, geopolitical events, legislation, and more. Here’s why timing matters:
- Supply and Demand: The basic economic principle of supply and demand significantly impacts commodity prices. When supply exceeds demand, prices tend to drop. Conversely, scarcity or increased demand leads to price hikes. By timing your purchase during favorable supply-demand conditions, you can secure significantly better prices.
- Seasonal Patterns: Many commodities exhibit seasonal variations. For instance, energy demand often spikes during winter (heating) or summer (cooling). Timing your commodity purchase strategically can save costs.
Historical Trends and Cycles
Analysing historical data reveals cyclical patterns in commodity prices. Consider planned maintenance schedules for gas pipelines that occur in August and September. The maintenance is scheduled months and years in advance, so customers should conclude contracts/commodity purchases pre-maintenance season to avoid predictable price spikes that can easily occur due to lower capacity at this time.
- Boom and Bust Cycles: Geopolitical tensions, energy policies, and global events influence energy prices. Understanding these cycles helps your commodity trader to time your purchases effectively.
Geopolitical Events and Immediate Effects
- Political Instability: Regions with major commodity production can experience tumultuous events. For example, Russian/Ukraine tensions impact on gas markets. By monitoring geopolitical events, you can make informed decisions.
Technological Innovations and Production Costs
- Advances in Technology: New technologies affect production methods and costs. For instance, fracking revolutionised natural gas supply, leading to lower prices. Being aware of such innovations helps you time your purchases.
Capturing Opportunities
- Market Timing: Opting for a contract that has Commodity Trading built in, enables your organisation to benefit from monitoring commodity prices and adjusting orders accordingly. The commodity trader will capitalise on changing market conditions. Such flexibility is the key to ensuring a competitive price.
Conclusion
While choosing a reliable supplier is crucial for customer service, the right timing can significantly impact your bottom line. If your organisation is fortunate enough to qualify for a Flexible style contract, of which we offer many types, this is our plea for you to consider it. Direct Power has a range of Flexible contracts to choose from, ranging from an entry-level product suited to a flexible first-timer, to fully bespoke solutions for the more experienced client. Best of all, you don’t have to do the work, we have a commodity team ready to take care of all your commodity purchasing needs. The benefit of professionally managed commodity purchases far outweighs the old school approach of comparing multiple supplier fixed offers on a given day. Remember, all suppliers buy and sell energy on the same markets, so there will be minimal difference from competitive suppliers on any given day. It is the actual “day” the commodity is secured that will have an outsized impact on your energy spend, not the supplier you sign with.
Flexible curious? Next steps:
Get in touch with Direct Power to review your energy needs and determine an appropriate Flexible strategy, as this will be the key to cost-effective commodity purchases!
