Contract Renewals – It may be a turbulent time but now is a good time to act
We are always working on your behalf to get the best possible prices for your utilities contracts. Whilst we appreciate that schools will be working hard to manage the new challenges presented during these turbulent times, we did want to make you aware that wholesale electricity and gas prices have recently reached their lowest point in a decade. This makes it an excellent time to secure good prices for contracts that are coming up for renewal in the next few months and also for those who may wish to look well into 2021 and 2022 in order to achieve good savings.
In energy price terms, we are looking at an almost perfect storm of reduced demand, resulting from the COVID-19 measures lowering industrial energy consumption; high generation capacity; and an increasingly strong pound, which has driven UK wholesale prices down.
We don’t see this situation being sustainable in the long term. This is because the generators and gas shippers have a minimum commodity cost, below which they lose money – and history shows that they will not allow this to be sustained. The chart below shows that, even in recent years, the wholesale cost of electricity and gas has been at almost two and three times current costs respectively, and these days could return.
Of course, wholesale costs are not the whole story and some of the benefits that we can achieve in the current low wholesale market will be eroded by increases in non-commodity costs, such as distribution and transportation and – not least – environmental levies. These non-commodity costs are, however, unavoidable and are forecast to only continue increasing.
We are already seeing some suppliers becoming reluctant to price for the long term, so it is worth acting quickly if your energy is due for renewal. If you would like any advice, please contact us.