Managing Energy Price Volatility

Wild swings in energy costs can be scary for a business, but there are ways to tame the uncertainty. While no one can control the global market, you can adopt strategies to soften the impact of price spikes (and even take advantage of price dips). Here are some approaches to consider for managing energy price volatility:

1. Have a Purchasing Strategy (Don’t Just Wing It): First and foremost, decide on a game plan for your energy contracts rather than reacting last-minute. This might mean setting a policy like “we will fix prices when our target rate is achievable” or “we will purchase quarterly in increments.” The key is to avoid panic-buying when prices surge or getting caught off-guard at contract end. Savvy energy buyers monitor key market indicators – like gas storage levels, oil prices, major geopolitical events – to gauge when to secure contracts. You don’t have to watch it daily (that’s our job, if you want help), but having an eye on the market and a plan for different scenarios (e.g. “if prices drop 20%, we’ll consider fixing 2 years”) can instill discipline. The worst position is scrambling after rates have already shot up.

2. Consider Staggered or Flexible Purchases: Rather than betting everything on one contract renewal date, some businesses use a staggered approach. For example, if you have multiple sites or meters, you might spread their contract end dates throughout the year. Or if you’re a larger user, you might use a flexible contract to buy portions of your expected volume over time. The idea is to avoid locking all your supply at what might turn out to be a market peak. By averaging your purchases (buying some now, some later), you reduce the risk of poor timing. Of course, you also might miss the absolute lowest price, but it’s about risk management – smoothing out the highs and lows. If you’re small and only have one contract, you can simulate this by perhaps renewing a bit early. For instance, if prices look attractive 3 months before your contract ends, there’s nothing stopping you from closing the deal then (many suppliers allow signing contracts well in advance). Don’t feel you must wait until the last minute – that’s a common mistake.

3. Lock In Long-Term (When Prices Are Low): When the market presents a significantly low price opportunity, one strategy is to secure a longer-term contract to ride out future volatility. For example, in times when prices dip near historic lows, locking a 3- or even 4-year deal can shield you from the next spike. You’ll want to be sure the price really is favorable – compare it to a 5-10 year history if possible. The risk with long contracts is you’re stuck if prices keep falling further, but if your priority is stability and the rate is comfortably within your budget, it can be worth it. Many businesses that fixed before the 2021 crisis for multiple years were very happy they did. It’s a bit of a crystal ball decision, but that’s where market insight helps.

4. Embrace Demand Flexibility: Another way to manage price risk is on the consumption side: adjust when and how you use energy to avoid the worst price periods. If you have any flexibility in your operations (say, running certain processes at night or charging equipment during off-peak hours), use it. During volatile times, the difference between peak and off-peak prices can be huge. By shifting some usage to cheaper periods, you dodge high rates. The National Grid also has schemes that pay larger users to reduce load at peak times. Even if you’re a smaller business, simple steps like pre-heating or cooling your space before peak hours, or scheduling electric vehicle charging overnight, can save money when prices are spiking. Essentially, when the market is volatile, not every kWh is equal – using more when energy is abundant (like windy nights) and less when it’s in short supply (calm winter evenings) can trim your costs.

5. Improve Energy Efficiency: The less energy you use, the less exposure you have to price swings. Investing in efficiency is a volatility mitigation strategy that often gets overlooked. Upgrading lighting to LED, improving insulation or HVAC systems, installing smart controls – these can permanently lower your consumption so that when prices do spike, your bills increase by a smaller proportion. Some efficiency measures have immediate payback when prices are high. For example, an energy efficiency improvement that saves 10% of usage can significantly offset a 10% price increase. Plus, efficiency saves you money in any market condition. It’s a long-term buffer against volatility and part of good business practice (and it has sustainability co-benefits!).

6. Keep Communication Open: If energy costs are becoming a serious strain due to volatility, talk to your supplier or broker. In some cases, there may be solutions like changing your billing to smoother monthly budgets (some suppliers offer budget plans to spread costs), or renegotiating certain terms. At the very least, by communicating early about any difficulties, you may avoid credit issues or supply problems. Also stay tuned to government support – during extreme events, the government has occasionally stepped in with relief (for example, temporary bill discount schemes in 2022). We keep our clients informed of any such measures.

7. Use a Knowledgeable Broker/Advisor: Managing volatility can feel like a full-time job – because it is for some of us! A good energy broker (hello!) or consultant monitors the market continuously and can alert you to opportunities or red flags. We help clients set strategies tailored to their needs – some want to fix ASAP for peace of mind, others want to watch and wait for a while. We can execute block purchases in a flex contract, or simply let you know “it might be a good time to renew early” when market conditions look favorable. Essentially, you don’t have to go it alone. By working with experts, you gain market intelligence and someone to act quickly on your behalf. This can make a huge difference in volatile times.

In conclusion, while you can’t eliminate price volatility, you can manage it with a thoughtful approach. It’s about balancing risk and reward, and being proactive rather than reactive. Implementing even a couple of the above tactics can help bring more stability to your energy costs. And whenever you need guidance or a second opinion on strategy, we’re here to help. The energy market may be a wild ride, but with the right plan, you can ride it out and keep your business on track.