What Is Energy Procurement?

Creating an energy procurement strategy for your business may be a daunting task at first, with lots of factors such as contract types, business goals and fluctuating prices to consider. 

But what exactly is energy procurement? And how can you create a strategy that fits your business needs? Our guide simplifies the process, helping you establish your goals, choose a contract type and create an effective procurement plan for your business. 

Energy procurement is the process of finding the best energy contract for your business electricity and gas. It involves assessing your individual needs and goals and comparing suppliers and contracts. 

Instead of just settling for the first rates they are offered, businesses can use energy procurement strategies to find the most cost-effective and reliable energy options. To do this, businesses need to examine their energy usage and behaviour, both current and aspirational, as well as any future targets and sustainability goals. 

This may involve implementing strategies to take advantage of fluctuations in energy prices or adjusting usage patterns to make use of off-peak rates. 

Effective energy procurement can help you find a reliable supplier, save money on your energy bills, and contribute to green targets, as well as make forecasting and budgeting easier and more accurate. 

Every business is different, so what works for one business may not work for another. That’s why there are a number of different options when it comes to business energy contracts: 

• Fixed contracts – this is the most common type of contract, with a set duration (usually between 1 and 4 years) and fixed rates. Fixed contracts can be particularly beneficial if signed when rates are low, locking them in and protecting you from fluctuations. However, if prices drop after you have secured an agreement, you will not be able to take advantage of price drops. 

• Variable/Freedom contracts – in these contracts, rates are periodically reviewed, and the supplier will contact customers to inform them of changes. Customers can secure a fixed contract, either with the same supplier, or a different supplier, at any time, with a 30-day notice period. This is ideal for businesses who may need to move their supply frequently or at short notice. 

• Green energy contracts – Green contracts are a great option for businesses wanting to boost their CSR and reduce their carbon footprints. Green plans use renewably sourced energy from sources such as wind and solar energy. 

• Blend and Extend contracts – these contracts allow businesses to benefit from lower market rates whilst being locked into an existing fixed-term contract. Customers can ‘extend’ their existing contract length whilst ‘blending’ their current rates with reduced market rates. This means businesses can take advantage of a drop in market prices, even if they’re already locked into a fixed contract.   

To find out more about business energy contracts, read our full guide. 

When creating a business energy procurement strategy, the first thing you need to do is assess your energy needs and goals. For example, do you have a strict budget that you need to stick to? Are you prioritising your carbon footprint? Your individual needs and circumstances will dictate the best option for you. 

You should also familiarise yourself with how the energy market works and what drives energy prices. This will help you to find the best time to start your energy procurement strategy and secure the best rates for your business.  

Energy brokers act as intermediaries between businesses and energy suppliers and can help to find competitive rates and secure contracts that suit the business’s needs. Brokers have specialised knowledge of the energy market and may have a portfolio of suppliers that they work with, making it easy for them to source quotes and negotiate specific contract terms. 

Brokers typically work on a commission basis, which means their fees are included in your energy rates. It’s important to ask brokers upfront about their commission structure and ensure it aligns with your budget and energy procurement goals. 

Every business’ energy needs are different, so it’s important to consider your circumstances when deciding whether to use a broker or not. 

If your business has environmental CSR goals, opting for renewable energy procurement is a great way to make your business greener and can help your business in the following ways: 

• Reducing your carbon footprint – renewable energy releases little to no greenhouse gas emissions and is generated using natural and abundant resources such as wind, sunlight and water movement. This means that if you power your business with renewable energy, you can significantly reduce your carbon footprint. 

• Boost your CSR and brand image – using renewable energy to power your business shows a commitment to helping the environment. Many customers and investors are now favouring green businesses. 

• Align with goals and standards – in the UK the government has set specific targets relating to sustainability, such as Net Zero by 2050 and ESG standards for businesses. 

• Support renewable growth – green energy procurement helps create demand for renewable energy which encourages new projects and greater investment in the renewable sector. 

• Transparency and accountability – renewable energy procurement provides companies with a clear metric to track and report their environmental impact, which can increase transparency with customers and investors. 

Having the right energy procurement strategy in place can help you to save on your business energy costs. For example, by starting off with a business energy audit, you can build a detailed picture of your energy usage, creating a great starting point for developing an energy saving plan. This might involve upgrading your building and facilities to be more energy efficient, e.g. keeping up with repairs and swapping to more efficient appliances.  

Opting for an energy contract with a smart meter is another great way to streamline your business energy, cutting out the need for manual meter readings and helping you keep a closer eye on your energy consumption. 

We have a range of energy saving guides full of tailored tips for businesses of all sizes and sectors, so you can start saving on your business energy costs. 

Whilst creating a business energy procurement strategy is a great way to save on your utility costs, there are still a number of challenges you may encounter along the way.  

For example: 

• Market volatility– energy prices are known to fluctuate and can sometimes be difficult to predict. However, you can minimise the impact these changes have on your energy costs by opting for a fixed rate contract 

• Energy market complexity – things can be a little confusing at first, which is why it’s important to do your research and ensure you understand your options so you can make informed decisions 

• Understanding your energy needs – in order to understand your energy needs, you will need to carry out an energy audit and consider your priorities and goals e.g. cost saving, consumption reduction, sustainability etc 

• Finding a reliable supplier – when choosing your supplier, you should do some research, gather quotes and try to find a supplier that specialises in business energy 

The energy market can be volatile, with electricity and gas prices fluctuating regularly, so it is important to be aware of market trends when you are planning your energy procurement strategy. 

There are several factors that can affect market rates for the energy you use:  

• Supply and demand – at times when demand is higher e.g. winter months, the supply will also cost more, directly impacting energy prices 

• Word events – as energy generation is a global operation, disruption such as political unrest and natural disasters can cause issues with the production and transportation of energy affecting the prices.   

• Consumer behaviour – as more people shift towards renewable energy and greener practices, this creates greater demand, affecting prices. However, this demand has also led to greater investment in renewable energy which may contribute to a decrease in price over time. 

To find out more about the energy market and for more information on what drives energy prices, check out our in-depth guides. 

Energy procurement can look different for different types and sizes of business. For example, the best strategy for a large multi-chain corporation may not work so well for a small independent business. 

• Buying power – large businesses typically have greater buying power and can better negotiate lower rates because they buy larger volumes of energy. 

• Contracts – large business energy contracts may be more complex than small business energy contracts, which are more straightforward and often easier to manage. 

• Resources – large businesses often have more resources at their disposal, such as dedicated energy procurement teams or consultants to analyse energy trends, negotiate contracts and manage risk. However, small businesses may not have these resources. 

If you’re ready to start your business energy procurement journey, Yü Energy can help. We specialise in working with businesses to create solutions that make energy management easy. Get your free quote or find out more about how our business energy solutions can support you.