The Energy Action Group (EAG) – 2021 Energy Buying Basket
Welcome to the 2021 Energy Action Group energy buying basket
Table of Contents
This is the 11th year of the EAG buying basket and there are 178 organisations taking part, ranging from large, heavy energy users to small charities, and everything in between.
The Energy Basket is always influenced by prevailing market conditions and this year has plenty. Our objective is to explain your options and factors to consider. Your account manager can discuss these with you and the effect your decision will have.
What is different in 2021?
There is no shortage of factors to consider this year. Coronavirus has had a big effect on the energy market and there will be several considerations to take into account during contract negotiations.
With so many organisations on reduced schedules, home-working or with mothballed sites, the impact on energy suppliers has been significant, and this has led them to reassess their contract models. Their steps to mitigate their risks and losses have potential consequences for customers. It’s therefore important to identify suppliers that present the least risk to EAG Members.
What are the risks in 2021, and what action can be taken?
When purchasing gas and electricity from the markets, suppliers purchase sufficient volume to meet their projected requirements to cover their customer’s present and future requirements, for periods as far as 5 years in the future.
These forward volumes are based on the contracted client volumes, with allowances for margins of error, which in turn is based on the Annual Quantity (AQ) of past consumption*. This model works well until actual consumption proves to be too little, or too much.
To cover any excess or deficit the supplier will enter the market to purchase extra energy or sell their excess, often at a loss, which is why they need to accurately forecast your actual requirement and why your AQ matters.
* A customer can ask to amend their projected AQ should they have good cause to believe they will use less or more energy.
What is Volume Tolerance and why is it important in 2021?
Almost all energy contracts contain what are known as ‘Take or Pay’ clauses that cover any excess or deficit of your contracted AQ. They operate on a basis of Volume Tolerance, typically set at 80/120%. This means that the supplier will allow you to use as little as 80% and as much as 120% of your contracted AQ without incurring penalties. Outside of those levels they could a) charge as if you had used 80% of forecast, though you didn’t, or b) charge consumption over 120% at a different (higher) price. These clauses are rarely implemented, except for very large supplies, but they remain in force to provide additional security for suppliers.
Because of Covid more suppliers are either considering or have decided to enforce Take or Pay clauses.
The ramifications of highly erratic energy consumption over the past year are still being digested. Some consumers may bounce right back to pre-pandemic consumption levels whilst other are undergoing complete restructuring with the consequence that their previous AQ has no bearing on their future needs. In the event that your previous 12 months consumption is not representative of your future needs you could very likely be open to Take or Pay charges by the supplier.
How can I avoid Take or Pay?
As usual, the 2021 EAG Buying Basket has been tendered to a wide range of suppliers. The results are still being received and tariffs and standing charges are being evaluated.
We are also evaluating each supplier’s policy on Take or Pay and Volume Tolerance. In so doing we are finding several suppliers who will NOT be applying charges in any circumstances, whilst others are taking a more nuanced approach, and yet others who fully expect to do so.
As you may suspect, those that will not be implementing Take or Pay may be more expensive.
Contact us for more information on Take or Pay
What is the EAG Advice regarding Take or Pay?
There are 2 distinct strategies that provide protection against potential charges.
Firstly, select a supplier that will not levy volume tolerance charges in any circumstances, notwithstanding higher prices.
Secondly, if you are prepared to select a lower price from a supplier where there is a possibility of charges, it would be prudent to select a short, 12 month, contract to restrict potential charges to the shortest available term. In due course, when normal consumption is re-established, longer duration contracts can be considered again.
Budget Security
Smaller, more conservative organisations, who depend on fixed budgets and pre-established costs may consider choosing a long term contract from a supplier who will not implement Take or Pay.
Credit Checking
Energy suppliers look closely at every prospective client’s Credit Score. The pandemic is causing financial stress for many organisations and energy suppliers are very sensitive to this since they supply energy on credit. Some suppliers are not accepting new clients from specific sectors such as Hospitality (hotels, restaurants, pubs) & other sectors they view as high risk.
For more information on how your Credit Score is created and how you can improve it, click here.
Adverse Weather
Short term weather events can impact long-term energy prices. The cold snap in April has caused both gas electricity prices to spike. This should be a short term effect and we expect prices to gradually soften.
Do you qualify for a reduced VAT rate?
The Energy Action Group can help you verify whether you qualify for reduced rate VAT. This is important because it not only aids cash-flow but results in the elimination of the Climate Change Levy (CCL) which is otherwise added to bills.
Whilst we use our best endeavours to ensure your contracts are placed on the right VAT level, it is commonplace for energy suppliers to apply the rates at the wrong level & for eligible organisations to be unaware of the reduced VAT benefit. If you have over-paid you may be able to recover the excess for the last 48 months.
For any advice or help with VAT, get in touch, and we will help confirm your eligibility. We can also help process your application for VAT reduction and CCL exemption with your supplier.
For a more detailed explanation of VAT reduction and CCL exemption please click here: VAT & CCL
2021 is a great time to go Green!
AND IT HAS NEVER BEEN CHEAPER TO DO SO!
Green or Brown!
Green Electricity
2021 is a great time to go Green!
The EAG has sourced fully renewable green electricity, backed by UK REGO certificates, and often with prices on a par with Brown electricity. Why not choose to Go Green & discuss that with your account manager?
Green Gas
Green Gas is not as plentiful as green electricity, but we have several suppliers offering it. Premiums for 100% green gas are relatively high, but partial mixtures of 25% / 50% or 75% are also available from some suppliers at more attractive rates. Please ask for details.
To find out more about Green Renewable Gas click here…
The 2021 Buying Basket
The 2021 Buying Basket is comprised of approximately 27 gigawatts of gas and electricity with some 178 individual members. The bulk of the basket is comprised of charitable and not-for-profit organisations, with a good percentage of small businesses included too.
We’re seeking the most competitive current prices for members, using group buying power to attract the best energy rates. Once we have completed negotiations and number crunching, we’ll contact all members with comparisons to aid your decision making.
The Do’s and Don’ts when selecting Energy Contracts.
Do Not automatically renew your current contract with your current supplier. Supplier renewal rates are renowned for being higher than
competitive market rates.
Do Not subscribe to a verbal contract. You are better off having a clear audit trail when dealing with energy contracts. Copies of contracts, T’s and C’s and email confirmations are essential.
Always make sure you are comparing ‘like for like’ supply contracts. Partially fixed contracts will always appear cheaper than fully fixed but may result in unwelcome surprises during the contract life.
Always ask whether an electricity or gas contract includes all current, and future costs, and establish whether all environmental and other ‘pass-through’ charges are either included or will be added to bills.
Make sure you know which energy ’product’ you are buying, and what is, and what is not included.
Any professional should be able to explain exactly what differences there are between a supplier’s offerings.
Make sure you know the name of the person you are speaking to and identify which company they work for. We often hear of telesales callers who pretend to represent a supplier!
Unforeseen costs. Unless you have an appetite for risk, make sure you have a ‘fully fixed’ contract.
Make sure your current contract is terminated. We can do this on your behalf.
Try not to purchase energy during volatile winter months. Tariffs are affected by adverse weather.
We will send you a range of comparative offers for your consideration with a variety of contract durations.
The priority is to expedite the process quickly before prices change. The continuing uncertainty in the marketplace may trigger price increases.
Therefore, we urge members to get purchasing decisions completed and Signed Contracts, Direct Debit and VAT Exemption forms (where appropriate) returned quickly.