There has been extreme volatility in the Australian & New Zealand electricity markets over the last few years. With this comes significant (up to 50%) variation in your retail electricity rate, solely based on the time you re-sign your energy contract.
For many organisations, reducing business costs can and should start with a better energy procurement strategy. Matt Rowe, Manager of Advisory Services at Enel X Australia and New Zealand, shares his top three tips on how to leverage energy procurement to your advantage.
1. Engage the market when prices offer good value, not when your contract is about to expire
When it comes to energy procurement, waiting for contract renewal is the biggest mistake businesses make. Contract renewal should be treated as a risk management exercise: we want businesses to engage the market when the market price is at optimal value, not when an agreement is about to expire.
Businesses shouldn't wait to buy electricity three or six months out from renewal; if the market has good pricing 18 months before, that’s when you should lock in pricing. Equally, one shouldn’t lock away a three year deal, just because the pressure is on as your current contract is about to expire.
It’s important to understand your business needs and to develop your risk tolerance now, so you can negotiate an energy contract with the prices, terms and conditions that deliver the best value for you.
There are now many products offered by retailers that allow you to actively purchase energy into the future, so when the markets show value, be in a position to secure it.
2. Don’t get distracted by competitive tension between retailers
The timing of market activity is much more important than the competitive tension in the request for proposal (RFP) process.
Here’s why: if your business is tendering for the supply of electricity, you'll likely have three or more retailers competing to be your provider. As they are all pricing from the same wholesale market, the difference you would likely see on the current market price offered from different retailers may only be around 1‑2%. This difference comes down to how much they want your business at the time. They may have just lost a big customer, be the incumbent, or be looking to grow their book. That’s not a lot of savings, right?
The wholesale market moves around a lot. If you engaged the market at a different time, prices could be significantly higher or lower than today. Don’t rely on the small percentage advantages of competitive tension between retailers - timing is everything!
