Every organization has varying requirements when it comes to fitting energy contract into budget. Making the right energy buying decision for your organization requires many important factors such as understanding your budgetary needs, risk profile and operational flexibility among other factors.
While some organizations have a preference to pay a premium for a consistent energy price that will provide them a predictable budget, others go to market on a regular basis in order to try to capitalize when prices drop, and alter their production schedules to lighten the load when they spike again later. Most of the businesses lie somewhere between these two extreme ends of the spectrum. They need to make sure that they have enough energy to fulfil their needs, but do whatever they can to cut costs through internal energy management practices.
One of the easy ways to achieve this is through purchasing energy at a fixed price with the ability to pass through capacity costs. This approach establishes a consistent price for the energy itself, but enables the organization to control one of the considerable drivers of their monthly costs and to do so without putting a burden on their staff or resources.
In a fixed price contract, a buyer and seller enter a fixed-price contract by agreeing on the final costs of a good or service. The final cost is set by the contract that both parties sign and agree to honour. The length of time that the fixed price lasts depends on the terms of the contract. A fixed price contract offers a predictable scenario to both the buyer as well as the seller, providing stability for both during the length of the contract. A buyer may be concerned about the cost of a good or service increasing suddenly, adversely affecting his business plans. On the other hand, the seller may be concerned about the value of his good or service dropping suddenly, reducing his income with little to no warning. A buyer may also benefit from the predictability of a fixed-price contract, since any degree of uncertainty on the final cost of the project exceeding initial estimates shifts completely to the seller. An employee of the buying company may favour a fixed-price contract since it gives him a concrete budget to present to his superiors for approval, versus a contract where costs may rise indefinitely over time.
If you are planning to have a fixed energy contract, the first option to consider is whether you want an energy only contract or fully delivered contract. An energy only contract is one where you buy your energy component and all non-energy charges are passed through to you either at grid supply or at meter. When these charges are passed through at cost, you pay in line with the industry standard. This helps you to avoid risk premiums and insures transparency from the suppliers. The other option is a fully delivered contract which is likely to be more expensive since the supplier premiums are included. They don’t want to take on all the risk, so will charge you to cover this cost. However, if budget certainty is important for you then fully delivered contract could be a better option, even with the price premium.
Even though, a fixed price contract may cost a buyer more money up front, the buyer has the ability to budget for the costs of the contract and ensure that it has enough funds in order to fulfil its end of the agreement.
For more information, you can call on EDF Energy Contact Number and get in touch with its team.
