Rising energy prices: what can your business do?

Costs are increasing for all organisations, across most of their supply chain, however it seems that a common area of concern is the cost of energy and how to manage this.

We, as an energy supply partner, are supporting businesses through these challenging times and helping them to think about the energy price challenge in the most appropriate way.

Manage your consumption

In the current market, it’s very hard for businesses to save on their energy spend, so careful planning and budgeting is key for all businesses. As a first step, it’s essential to understand how much energy your business consumes.

Having a clear view of your consumption patterns, using solutions such as smart metering and sub-metering, can help you identify trends and key areas for reduction. By controlling where and when you use energy, you could see some reductions in overall costs by simply using less.

Taking a more considered approach to how your business uses energy is important, but you also need to understand the type of energy contract you are buying.

Are fixed-price tariffs better?

A fixed-price contract provides you with price certainty for a set period of time. For many small to mid-sized businesses, and indeed certain larger organisations, certainty is important, and a fixed contract will enable you to tightly budget your energy spend.

It’s worth noting that this certainty comes at a premium, as the supplier takes on all of the market risk. And it’s essential that you fully understand the terms and conditions of your agreement, to be clear on how fixed the contract really is, as in some cases suppliers have clauses that allow them to claw back increased costs.

Be flexible

Some larger or more experienced businesses will have the ability to buy energy through flexible price contracts, where they will ‘hedge’ their energy purchases over periods of time.

We see organisations adopting a variety of hedging strategies. Some prefer to be as ‘fully hedged’ as possible, as they seek to lock in what they see as reasonable forward prices and maximise budget certainty. Others may have a mandate to track the market closely – accepting upwards as well as downwards movements – and be ‘fully indexed’ – whilst some businesses opt to be somewhere in the middle, adopting a ‘hybrid’ strategy.

Ultimately, there is no right or wrong approach, but it’s essential to make informed buying decisions, working closely with your supplier to balance your objectives with market fundamentals, based on a clear risk mandate and budget strategy.

Go long, and low carbon

For larger energy consumers that are able to make a longer-term commitment, a Corporate Power Purchase Agreement (CPPA) could be an interesting option to manage price volatility. CPPAs are a more sophisticated solution to shield businesses from price fluctuation, whilst potentially supporting new renewable generation and emissions reduction.

CPPAs usually offer a fixed energy price over a 10 to 15 year term, providing long-term price certainty whilst also progressing your journey to Net Zero.

Generate your own power

For some businesses, there is potential for onsite generation. This could be achieved through installing solar photovoltaic (PV) panels on roof or land to generate energy from sunlight.

This can reduce energy bills, removes third party delivery costs and provides a direct ‘off-grid’ source of renewable electricity that is protected from market price volatility. This would offer your business an additional level of resilience as you reduce dependence on the grid.

Options are available from purchasing the installation outright, through to financing via a power purchase agreement (PPA) without the need for capital outlay.

Addressing both cost and carbon

In the face of rising costs, some organisations have had to refocus on their core operations, but many businesses still remain unwavering in their net zero plans. This is vital as we know that the road to net zero is a long journey and the recent price crisis has reinforced the need for investment in zero carbon energy sources such as renewables and nuclear, and to reduce our reliance on gas.

As a result, businesses are looking to find ways to balance their environmental impact with the current financial challenges which, taking the examples above, are certainly not mutually exclusive.

Ready to take action?

The energy market is complex, but experience tells us that businesses make smarter decisions when they’re better informed. Working with a reputable supply partner will help you devise and execute an energy strategy to meet the short and long term needs of your business.

At EDF, we can help you navigate the options and guide you to balance your budgetary and sustainability goals – get in touch to discuss any of the options above.