Energy price decreases: what’s a business to do?

With domestic energy prices falling, James Constant takes a look at the options and opportunities for business energy customers.

It’s that time again: domestic customers are getting the ‘benefit’ of price drops; energy suppliers are hogging the headlines; ministers are getting tetchy; consumer groups are banging the drum…but what of the wealth generators, the business energy customers?

No price drops?

No choice?

No alternative?

No change?

If you think that, you couldn’t be more wrong. Bear with me whilst I shed some light on the murky workings of the energy market.

‘Market’ is an important word. Energy, be it gas or electricity, is traded on the wholesale market, and like any trading activity, it sets a price payable against a volume available.

The concept of ‘supply and demand’ drives the price; the more there is and the less demand, the lower the price, as someone can always shop elsewhere so the price needs to be keen. When supply is limited and demand is high, the price is driven up, as other options are scarce.

Add in the ‘global complex’ of energy, where the issue of one country affects another thousands of miles away (Whether that’s an earthquake in Japan that knocks out nuclear and means it has to be replaced with LNG, which in turn means LNG imports have to be being diverted away from their Western European destinations, or the fragility of the Middle East affecting confidence in supply and driving trading in commodities to higher prices, or even nearer to home, the interconnector between Britain and France sending fuel to the continent to capitalise on higher market prices while causing a supply constraint in the UK.) the issue is compounded.

And then there's the UK itself: aging, creaking power stations with reliability issues, uncertain weather leading to freak conditions of winter summers and summer winters and generators withdrawing capacity from the market - sometimes justifiably, sometimes questionably.

So all in all, before you take into account the commercial considerations of suppliers (or margin as it is more commonly known) there is a natural volatility in energy markets for which the user bears the cost, whether they’re business or domestic.

But it’s not all bad news. We’ve all seen the adverts with the important warning ‘markets can go up as well as down’ and that’s where the business energy opportunity comes in.

If the market has fallen enough for suppliers to bring down domestic prices, you can bet that the market generally has been on a downward movement for some time.

Why? Well, for domestic customers it is the protocol of suppliers to make as few price changes as possible. (It doesn’t always feel like that of course from the blanket media coverage of consumer energy costs.) As a result, a domestic supplier change will come after a prolonged period of market movement (up or down) which will enable a greater level of certainty for the supplier on where the market is ‘at’, where it is going and how to make a profit.

So if a domestic customer is getting lower prices the market WILL be at a lower level than in recent history and that’s the buying opportunity for a business energy customer.

Not only that, but the flexibility of the price and deal is much greater for a business customer than a domestic one, whether you’re a corner shop or a multi-national, there's a deal to be done. 

So what’s stopping you? If you don’t know your contract end date then call your supplier now and find it out as a matter of priority. Alternatively call a reputable broker (I know one I would recommend!) and they will get the information for you and be able to guide you through when best to grasp the falling market opportunity and how best to do it. (Naturally they will do all the hard work for you.)

A couple of pointers:

1. If the market moves down excessively then it could pay to extract yourself from your existing contract and agree a new lower rate one. Always contact your broker before engaging in this exercise though.

2. Despite everything I have said, a falling market isn’t the only buying opportunity. In fact, given that the energy market trades on a half hourly basis, there are 48 price windows a day and a myriad of contract lengths that will drive ‘volatility’ in the market. ‘Volatility’ is the second key word after ‘market’.Prices do not move upwards or downwards smoothly, rather they move up and down like stalagmites and stalactites, so even in a down period there's a movement upwards and vice versa.

Confusing? Definitely.

Impossible? Not at all

A hassle you don’t need? Let someone else do the hard work for you! 

Once you’ve taken the opportunity you’ll not let it drop again, apart from the price that is.

Give our expert business enegy advisors a call on 0800 688 8568.