Weighing up your Options: accessing flexible procurement

Budgeting in a volatile market

Many businesses opted for a fixed-price contract when the market was at its lowest point, locking in low prices. However, those with fixed contracts coming to an end may be in for a shock. Commodity costs rose by 40% year-on-year between January 2016 and January 2017, which means that some businesses will see their energy costs rise substantially when they come to renew their contracts:  businesses with an annual spend of £500k in 2016 should now be budgeting for up to £590k. With costs forecast to rise by another 25% by 2020, reviewing your approach to risk management could be a prudent exercise.

Reviewing your risk strategy

Choosing between fixed and flexible approaches can mean compromise – accepting the risk that comes with flexible purchasing or missing out on bearish markets when locked into a fixed contract. However, in a rising market, businesses opting for more flexibility and longer supply arrangements can still find opportunities to benefit from short term movements.

There are alternatives to the binary choice of fixed versus flex. Inenco’s Options portfolio allows businesses to spread their volume across a range of different purchasing approaches, from fixed to hedging on forward and prompt markets. This means that businesses can place some volume on a fixed and capped price contracts to retain some budget certainty and protect against future price rises, whilst retaining flexibility to react by placing the remainder on forward or day ahead markets. For many businesses, this is a great way to balance price risk with opportunity, with Inenco’s award-winning energy traders executing a strategy within pre-agreed risk parameters.

Whatever strategy suits your business and budget requirements, revisiting your procurement strategy to ensure it remains fit for purpose is always worthwhile. A carefully thought-out strategy can help your business avoid unnecessary spending, operate to an acceptable level of risk and minimise the impact of rising prices.

If you think your energy strategy needs to be refreshed, but you’re not sure which is the best approach for you, our team of experts can help you to understand your options further – contact us today.