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1 year Energy Deal vs Longer Term Fix

In the latest in our series of questions to the boss, we focus on the big issue of “Should I be taking a one-year deal or fixing for a longer term? Which option will give me the best value for money?”

Business Juice:

“This is the ultimate measure of whether you’re a pessimist or an optimist! In truth ALL the signs are favouring the pessimistic outlook: security of supply, imports, phasing out old nuclear, building new nuclear, replacing fossil fuels, developing renewable sources, searching for renewable efficiency, subsidies, taxes and all that before any major natural or wartime disaster. It really isn’t difficult to forecast a rise, but as ever it is about your appetite for risk.

“Energy prices – like any market – trend in a direction but are not necessarily exponentially linear; there will be purchasing opportunities even in a market that rises overall. The question is will you be in a position to take advantage of these opportunities or will you miss out and be exposed to that backdrop of increases?

“The quid pro quo of contracting for longer is more security and certainty of prices but with a premium based upon the unknowns further along the energy curve.

So is it a risk worth taking?

Broadly ‘yes’; in a rising market, fixing for a longer term makes sense even if there is an initial premium to pay. Certainty of cash flow is a mainstay of any well run business and as a major cost for most, clarity over your fixed energy costs is a sensible way forward.

The best deals tend to be on single year contracts but the opportunity cost in that second year when you’re not locked into a fixed price and exposed to the market is the point at which you’ll know whether it was a good move or not. And that’s the appetite to risk you need to weigh up.

The majority of our customers fix for the long term and focus on the added security this brings to their business. That said any ‘premium’ that a multi year contract carries is often set off by market fluctuations and we have 3 and 4 year deals that beat most 2-year prices!

The key is to understand your options and weigh up the risk but fixing for longer is popular for a reason!

If you’d like a burning business energy question answered then please contact us on 0800 051 5770 or email and you could be featured in the series.

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