NFU answers frequently asked question

UK suppliers stop contract prices, posing new challenges for growers

"As the war in Ukraine deepens, our thoughts are with those living with its devastating effects. Here in the UK, we face a different kind of crisis with the ripple effects of what’s happening being felt in our energy market, and throughout the rest of Europe. Our farmers and growers are particularly vulnerable to high prices and as such we’ve put together a list of the most frequently asked questions to try and help ease some of the uncertainty", writes Claire Hartry with NFU Energy.

What is the reason for the difficulty in giving new contract prices to customers? 
In the past fortnight, we have seen huge increases in energy market prices to the extent that many suppliers have completely stopped giving out contract prices. The reasons for this are vast and varied but amongst Brexit, Covid, and Russia declaring war - global market prices have spiraled higher and higher and don’t look likely to slow down anytime soon. The unit rates UK energy suppliers are currently offering are so high that they cannot justify securing customers into contracts for a long-term basis. Once the market settles, they will resume pricing. If another broker or supplier can give you a price and they actively encourage you to take a contract when the rates are so high, please be mindful that it could cost you significantly in the longer term.

My contract has ended/is ending very soon – what shall I do? 
Every supplier is slightly different. However, with most SME and Commercial businesses, after the term of the contract is over you will default onto the suppliers out of contract or deemed rates. These rates are usually much higher than a contracted rate so are usually best avoided.  

Should I ever allow myself to default onto out-of-contract rates? 
In situations where the alternative is to secure a minimum 12-month contract on uncompetitive rates or no prices being available at all, some customers will make the decision to default to these out-of-contract rates until competitive prices become available again. It isn’t ideal but it can be more favorable than being stuck on high rates for a prolonged period. Every customer will be different and we’re here to talk you through those options. Please contact us for advice should you find yourself in this position, however, we must stress that ultimately the decision over which contract or option to go with lies with you. 

My renewal isn’t due just yet but usually, I renew it earlier – what shall I do? 
At present, due to market volatility (and the lack of prices to offer contracts Nationally), our advice is that if your renewal is more than 6 weeks in the future, to wait so we can monitor the market to try and benefit from any potential price decreases.  

What can I do in the meantime to make sure I’m ready for prices? 
To make sure we can act quickly if prices return to more acceptable levels, by providing us with your supply and consumption information we can get prices to you much quicker once they’re available. If you’re a large commercial user, we will need a letter of authority so we can gather your consumption information and tender for prices. Completing this ahead of time means we can get prices in 5 working days rather than it taking several weeks to gather the data. 

Why are prices increasing and what might happen in the slightly longer term?
Much of our electricity is made from gas, Russia currently provides around 40% of Gas supply into the EU, around 4% of the UK supply and a proportion of this travels through Ukraine. Whilst there is currently no shortage of gas, the market has concerns over the impacts of long-term sanctions and the consequent political decisions to limit exports (and imports) on both sides. As we enter spring and head toward summer our country’s requirement for gas diminishes (less heat and increased PV/wind generation). This is expected to ease prices in the short term, however we do not expect prices to fall to early 2021 levels - we advise you plan for longer term higher energy costs.

As well as being smart with contracts, what other ways are there to protect ourselves from situations like this in the longer term? 
How much you use is just as important as how much you pay when it comes to making a saving. We can support you with futureproofing your farm including actions like renewables feasibility, energy efficiency audits and our full Renewable Energy Solutions service. This is to help you implement renewables generation on your site, shielding you from market volatility and giving you the potential to sell your own excess energy generation back to the grid.  

For more information:
NFU Energy
024 7669 6512
www.nfuenergy.co.uk 
 
 

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