Energy prices are continuing to rise, and this trend has barely reversed throughout the whole of 2021. Whilst it is impossible to say how long the crisis will last, it is certainly fair to say that prices will stay at a high level for some time to come. Gas commodity is hovering around 250p/therm (8.5p/kWh) and electricity around £250/MWh (25p/kWh), up three times on what they averaged at this time last year. Electricity prices are also further added to by the non-commodity costs added to them such as taxes, green levies, and contract prices, sometimes meaning they are closer to 30p/kWh.
A few factors have contributed to this current situation, namely, the relatively cold winter and spring earlier this year 2020/2021, two nuclear power stations then failed to come online again after scheduled maintenance after summer, the UK has had its least windy year in 60 years, supplies from Russia tailing off by 25% less than 2020, EU gas storage facilities having delays on scheduled maintenance (postponed by Covid) meaning levels had not been sufficiently topped up, and demand from other markets affecting access with both Asia and South America now paying more for gas than before.
How best to react to price increases
The energy prices we are seeing are more than three times more than what we would expect. One strategy is to not renew and opt for Out-of-Contract rates until such a time that the prices come down. This is a good option if your supplier has not already increased their rates (we are seeing 40 – 95p/kWh). However, if they have, the best immediate solution for most would be to take a short-term (12 month) contract.
Another option available to larger users is to take a flexible contract. This seems like it might be counterintuitive as it exposes one to immediate price implications, but it will also be those people who feel the benefit of any price alterations downwards. Under flexible contracts, you have the option to fix for a week, month, quarter, or even season ahead so can choose when to move. Be aware this is not an option for everyone and comes with significant risk.
How can you ensure all your energy is measured and accounted for?
Whilst it is important to think about contracts and costs, it is always important to think about efficiency too. Even if options are limited where crop inputs are concerned, professional energy efficiency audits are very successful in finding ways to make savings.
Where do renewables fit into this mix?
Because of what has happened in the market, it has become apparent that customers with renewables onsite are doubly protected, both by being shielded by market volatility in having their own supply and in getting higher prices for exports to the grid.
If export contracts are due for renewal, now is a good time to negotiate a potentially lucrative uplift in rates. AD plants in particular, with their steady, predictable generation profile, are doing very well from current market conditions.
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