Blend and Extend Your Energy Contract: Immediate Savings for Your Business
Energy expenditure is one area that can be easily overlooked once an energy contract is in place. On a fixed price contract once the price is set it might seem pointless to try and change or negotiate your terms when you realise your energy usage is lower than expected and you can make a saving, but the good news is that there’s a REAL option for you if you need to reduce your energy costs quickly. In fact, you can save time and money by keeping your current supplier without being in breach of your contract.
It all boils down to one simple concept: blend and extend.
What is a Blend & Extend Energy Contract?
Glad you asked—but first, a bit of background.
Businesses in mid-value, fixed-price energy contracts—those who consume over a hundred thousand kilowatt hours to ten million kilowatt hours—are facing a constantly changing landscape. Oil prices in particular are volatile, going from flat to an upward trend and then falling again. However, rather than following the immediate trends of energy prices, it makes more sense to take a step back and evaluate long-term patterns in the market.
With that in mind, when the market is in a good position, regardless of shifts in energy costs, you might be wondering what you can do to take advantage, especially if you’re locked into an energy supply contract that lasts well into the next year. If your business has been suffering, then you might especially feel the urge to cut costs and take advantage of current market benefits.
Does your current energy contract have you paying more than the current market price? Think your fixed contract is actually a fixed contract all the way around, and can’t be altered? Think again: this is where blend and extend comes into play. Basically, this idea entails a negotiation between you and your energy broker or supplier where you trade an extension of your contract in exchange for the benefit of current market prices.
Rather than terminating your contract with your supplier early to shop for plans that offer the market value, a blend and extend energy contract allows you to slash your costs as a trade-off for an extended contract (e.g. an extra year of business) with your current vendor. This method will help you avoid hefty termination fees that your business would absorb, which could offset any potential savings gleaned from going in another direction.
How Can a Blend and Extend Contract Help My Business?
If money is tight, business is slow, or you’re saving for big purchases and investments that will further grow your business, adding a blend and extend clause to your contract makes a lot of sense. If you trust and have a good working relationship with your energy supplier, what’s another 12-24 months of extra business if you can enjoy lower costs? This is money that you can ultimately put toward bettering your business. If you didn’t plan to (or want to) switch suppliers at the end of your contract, you have nothing to lose and everything to gain.
But why might this arrangement be of interest to your current supplier? Simply put, it doesn’t put them at a disadvantage, as they don’t lose money on the original market position by extending out the contract term. They’re able to blend the existing market position into your new rate, which is obviously lower upfront for you, but gives the company the ability to make up the money from the original contract price over a longer period of business. Your supplier will also benefit from secured business over an extra year or two of working with your company.
At the end of the day, blend and extend can be beneficial for all parties involved, and allows you to lower your bottom line immediately.
What Should I Consider Before Using Blend and Extend?
There are circumstances where the option to blend and extend may not be right for your business.
If you are in a position where you don’t urgently need to cut your bottom line, it may be best to wait things out. Instead, secure your second year with contract terms that give you the full market benefit. The only downside to this is that you’ll likely have to wait several months before you can take advantage of those prices—and you might not have several months.
If you find your business in a position where immediate cost savings would be worth furthering your contract with your existing supplier, a blend and extend contract can be a foolproof way to ensure you reap the benefits of the market price at no disadvantage to you or your supplier. It’s a win-win scenario that will give you the bottom line relief you need, fast.
And if you have any questions when it comes to energy contracts and blend and extend, please contact us or call us on 0203 068 0000