What you should know about fixed energy contracts?

It can be frustrating to realize that a fixed energy contract is sometimes not fixed all of the time. This can happen on the energy market, making it important for you to understand what you can expect from a new energy before signing it up. Nowadays, many businesses prefer to have fixed energy contracts because of the security they provide when it comes to energy price increases on the market. This post explains what you should know about fixed energy contracts.

Understanding energy price

The energy price can be made up of several constituent parts. This includes the cost of energy which is the price of the raw energy commodity. There are also third party charges which refers to the elements of the cost of the energy that the energy supplier doesn’t control.

The third party charges the cost of the transportation, the cost of losses while transporting the energy through the wires and pipes, and the cost of installation, maintenance, and reading the meter. Remember that these are the costs that the third party services charge the energy supplier to get the energy.

There are also supplier costs which are the cost of energy supplier’s marketing and servicing to the customer. And, there is also the cost of the energy supplier’s margin. The energy price also has levies and taxes.

It’s worth noting that all fixed energy deals include several costs. Some of these costs are the cost of energy, third party charges, and supplier costs. But some energy suppliers don’t include some of the costs.

The costs that some energy suppliers may exclude are the cost of different electricity supply levies, the cost of government levies, and the cost of VAT at the current rate.

Some fixed energy deals can appear cheapest, but they exclude some costs. This means these fixed energy deals can be more expensive. Keep in mind that a fully inclusive fixed energy deal usually comes with a better price.

This is where you need the help of an energy broker like Utility Bidder to let you understand what is included in the energy deal and what is excluded. They make sure that the energy deal is the best one before you sign up.

That said, all costs may not be fixed all the time. This is because of the way this business energy market operates. Energy suppliers cannot control all elements that come up in the final price.

The changes are usually established by the government, such as taxes and levies. Third party entities also establish these changes like transportation and metering charges. And, the charges can change every year or even more often.

As a result of this, energy suppliers depend on an estimation of the costs so that they can determine the price they give to their customers. Some energy contracts can be priced for long periods of up to five years, so the energy suppliers need to estimate multiple changes in order to make sure that they can recover their costs.

Some energy suppliers prefer to fix these costs depending on the estimation level. Therefore, they offer a fixed price with the assurance that there will be no changes. There is a good chance that these energy suppliers build in an extra cost buffer  or even they can have confidence in their predictions and are pleased to give an energy deal that has no premium.

Other energy suppliers are happy to be cautious and may include the estimations in their price. They also tend to reserve the right to make some changes at any time. This can lead to these energy suppliers offering a cheaper price but with the option to change the amount you pay if the situation requires.

A variable cost

A variable cost can change, but it usually depends on the decision of the energy supplier to see if there is a price change. There are some energy suppliers that don’t allow a pass through, so they cannot make a price change that is based on their commercial decision. On the other hand, other energy suppliers can make changes, though these changes tend to be rare. In most cases, when there is a significant change, the energy supplier can allow their customers to break the energy contracts.

It can be hard to change the price if the energy contract specifically says the energy price is readily variable. But if this element changes, then customers can break the energy contract, especially for those not pleased with the offered price.

If you are in the energy business, the first thing you need to do is partner with a leading law firm. This is especially true for energy businesses that are stationed in the Middle East. Given the dynamic nature of the energy market it is best that you always work with a well-reputed and established business law firm that can help you frame and execute overseas energy contracts. To explore the best business law firms in Dubai, read more here.

Metering and transportation costs tend to vary considerably depending on your location, meter, and year. This is especially true in the gas sector because it can be a challenge for forecasters.

Metering and transportation is where a pass through of cost can usually happen. This cost is universal, so any energy supplier can be charged the same. And, there are few chances that a change can cause a break in the contract. Remember that the price change incidences for metering and transportation costs are quite rare.

Keep in mind that it’s not that bad to have a price that is not fully fixed. In most cases, this doesn’t mean that the energy supplier is trying to trick you. Instead, it’s possible that the energy supplier is trying to give you their best terms while also protecting themselves from risks in the future. Sometimes, these clauses may not be invoked, meaning the price you agree when signing up the contract can be the same price you will likely pay.

You should remember that some energy suppliers may not even include some estimated costs, especially levies in the offer price. In such cases, there is a guarantee that the energy price you may pay can be higher than their offer price. This cannot be avoided because all energy suppliers need to collect in full the levies. The thing is that you know everything that is included and make sure that you compare energy suppliers.

The energy market would have been easier to understand if all these costs were fixed and included. However, if this was the situation, it would have been hard to find great energy deals.