The truth about fixed price energy contracts | Blog | YPO

The truth about fixed price energy contracts

18 February 2016 By Georgina Penfold, Category Manager - Energy Solutions

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It has been well publicised that the price of energy has been gradually falling over the past 12 months. Gas is at a seven year low, and electricity prices are holding steady, despite green taxes.

This drop in energy prices has many industry commentators excitably encouraging customers to take advantage of the declining prices, highlighting fixed price contracts as the best way to secure the best value on energy supplies.  But is this really the most cost-effective route for schools?

These commentators argue that by exploring the market, customers will easily be able to find the cheapest deals and secure lower tariffs. They place their faith in fixed price contracts as the best way to take advantage of the historically low prices.

Interestingly, public sector procurement organisations have been singled out for criticism. They are accused of being restrictive, uneconomical and ultimately failing to provide the best value for their customers. 

Consider this argument carefully and you see how this is a very simplistic view of procurement organisations and the energy market as a whole.

Firstly, choosing a fixed price energy contract is highly risky. Prices may be attractive now, but you will have no choice but to renew your contract after 12 months, exposing your school and its tight budgets to sudden market changes.

By choosing a fixed price contract you unwittingly expose yourself to volatilities of the energy market, which can change dramatically over a relatively short period. Although prices are low now, if market prices fall further your school could be locked out, thus missing the opportunity to benefit from falling prices. A fixed term contract is undoubtedly a short-term strategy.

Using a purchasing organisation, such as YPO, to procure energy offers a low risk solution and a long-term strategy. By using flexible buying practices, purchasing organisations ensure that their customers never pay the highest price for energy. This is because as energy prices fall, purchasing organisations continue to buy chunks of energy which are fed into the following years pricing.

In addition, a partnership with a purchasing organisation provides access to a wealth of industry knowledge, including information on forward pricing, budgeting and price forecasting. In a highly regulated industry such as energy, it is useful to have regular updates on legislation changes and an understanding of how these changes may impact your school’s portfolio.  

Of course, all schools should carefully consider the most cost-effective approach for purchasing their energy needs. However, ultimately, the most effective way of reducing energy costs is reducing consumption, especially at peak times. Purchasing organisations can add value by providing independent, impartial energy saving advice as standard.

For more information and support with your energy needs, visit www.ypo.co.uk/energy or contact [email protected].

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