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Out of Contract Rates and why they should be avoided
10 August 2023
In what has been a turbulent time for energy markets, it is becoming increasingly important for organisations to ensure that their gas and electricity contracts are being properly managed. One mistake that we are seeing numerous businesses make is allowing their contracts to fall into Out of Contract Rates, also known as Deemed tariff rates.
These are rates applied when a contract comes to an end and no new contract is negotiated. The charges applied can be significantly higher than the typical market rate from a supplier, sometimes double what they would be paying if they were on a fixed contract. These rates can also be applied when moving into new premises without having prior negotiated a contract with a supplier.
Suppliers see that an organisation are not proactively managing their utility bills and take advantage by charging an inflated rate until a client is willing to commit to a fixed length of contract.
Out of contract rates are not fixed, so businesses can be exposed to significant price volatility. There are times, when prices are heading downwards, that this can be beneficial, and businesses can take advantage of decreasing wholesale prices. However, there will still be additional charges for being in out of contract status, and taking advantage of a declining wholesale price is more effectively done through a flex contract. Businesses on out of contract rates could find themselves facing much higher bills if prices rise, which could have a significant impact on their bottom line.
For these reasons, businesses should avoid allowing their gas or electricity to be on out of contract rates. Instead, they should see which deals are currently being offered by suppliers and negotiate a fixed-rate or flexible contract.
This will help businesses to lock in a competitive price and avoid the risks associated with out of contract rates.
The best way to avoid being on these rates is to know when your energy contracts are due to expire and to plan in advance. Businesses with an in-house energy department or using an external broker will usually be monitoring months in advance and discussing when will be the optimal time to sign a new contract.
If you are a business that is currently on out of contract rates -- or are worried about going on to out of contract rates when your contract ends -- we can help you save money on your energy spend.
If that's support that you feel would interest you and your business, get in touch and we'll happily work to help you find the best rates currently available, whilst providing the confidence and accountability that allows you to revert back to the core focus and operations needed in other areas of the organisation.
To learn more about how we can help, feel free to contact us at admin@seemoreenergy.co.uk
January 2025 Review By Adam Novakovic This January saw the UK record it’s coldest night in 15 years, but there wasn’t much in the way of wind to accompany the cold temperatures of the month. This combination led to more energy being used than expected and lower-than-hoped renewable levels being recorded, as energy prices continued to rise against the backdrop of European gas reserve levels being depleted. January kicked off with the long-expected news that Russian gas supply would cease flowing into continental Europe. Whilst the cessation of this supply had been long planned for, many would have hoped it wouldn’t coincide with a cold snap hitting the continent. The lower-than-expected temperatures have led to energy consumption being higher than anticipated putting a further strain on reserve supplies. While the weather forecasts were making for dim reading, there was some positive news coming from across the Atlantic. Donald Trump -- uncharacteristically for a politician -- had followed through on his pre-election promises and lifted the freeze on US LNG exports. In addition to reallowing exports to be permitted, Trump has also allowed for new US LNG projects to be applied for, this boosts both short and long-term positivity surrounding the gas supply that can be received by Europe. With the cessation of the Russian gas supply occurring instantly from January 1 st , and the restarting of US exports being something that will likely take months before export capacity is fully ramped up, it could be a few months before the positive effects are truly felt. This would coincide with the end the European winter, so it may be the end of March or beginning of April until the market has a more positive response. However, this could also be when European nations look to begin restocking their reserves. For those with renewals in the coming 3 months, now may be the best time to seek prices, as the further depletion of European gas reserves is likely to have a negative impact upon prices. For those whose contract is due for renewal later in the year, it may be best to be patient and wait for the market conditions to change. If your contract is due for renewal later this year and you would like a reminder sent when the market conditions turn more favourable, simply email your contract end date to adam@seemoreenergy.co.uk and we will provide reminders ahead of the renewal, at times when the market is presenting favourable negotiation conditions.
2024 Review By Adam Novakovic In a year that began with falling energy prices, there were recurring catalysts that led to prices climbing steadily higher. Geopolitical uncertainty and the perennial threat of escalating conflicts meant fear would maintain a constant presence in the wholesale markets. We will look back at the key energy stories from 2024, and how the energy markets are likely to shape up in 2025. Quarter 1 The year began with cautious optimism as the UK’s gas reserve levels were healthy and prices for the Summer’24 season were in freefall. In February, prices pulled back to their lowest levels since 2021, and for the first time in a while, we identified that there was greater potential for upside risk than for further downward price movement: “ there now (exists) an asymmetrical element of risk should the market encounter a supply-side problem of significance. ” During February we had advised customers on flexible contracts that this was an ideal time for making purchases. March would see prices begin to ascend again as international conflict would create problems with LNG imports, and we would highlight the geopolitical risks as an area for concern moving forwards: “ fears remain and there are potential negative catalysts that could lead to prices rising further, with the main factors to watch out for being based on geopolitical unrest. “ For a business that purchases their energy in advance, this quarter was the optimal time for purchasing during 2024. In February, electricity prices for Winter’25 were down to 7.75p/Kwh, and as low as 6.05p/Kwh for Summer’25. Winter’25 ended the year with prices above 11.1p/Kwh, with Summer’25 prices exceeding 9p/Kwh. For a company that uses 500,000Kwh of electricity per month, the difference between buying at the February low point compared to today’s prices would represent a yearly saving of over £200,000.
December Review By Adam Novakovic As we moved into the final month of 2024 it seemed as though Santa would be the one delivering positive news regarding energy prices. From the 1 st of December to the 16 th , wholesale gas prices fell by almost 20% and it seemed the overdue market correction was finally underway. However, the price movement for the remainder of the month was more grinch-like than anybody had hoped, as prices rose again, wiping out the decline we had seen in the first half of the month. There were 2 reasons for this rise in prices, the first reason being the weather. Initial long-term forecasts had not predicted this winter to be particularly cold, however, December saw erratic weather events and lower than anticipated temperatures. In October it had been predicted that UK gas consumption throughout the current winter would be very similar to the levels of last year. This now appears to be inaccurate as colder temperatures have led to increased consumption. European gas storage levels have dropped below 75% of capacity with the UK levels being around 55%. This does not compare favourably to last year and raises concerns of how prices could rise should there be a particularly cold January and February. Part of these concerns are already factored into the prices, but this is likely to be the largest short-term factor in energy prices.
November Review By Adam Novakovic
October Review By Adam Novakovic As we head into the winter months, gas prices and availability become a higher priority for many businesses and households. In this month’s review we’ll be looking at the factors set to dictate how gas prices move over the coming season. October started with fear in the energy markets as Iran launched retaliatory strikes against Israel. Worries of the conflict expanding have been a repetitive theme in energy markets for the past year and it seemed as though that was unlikely to change. The increased military activity had led to rising prices, however, as the month progressed, hopes of a possible ceasefire have increased with leadership on both sides signalling they may be willing to put an end to hostilities. How this plays out over the coming days and weeks could be a key factor in the stability of energy prices throughout the coming winter. Meteorological forecasts have now confirmed that the UK is likely to see a La Niña winter. La Niña weather patterns refer to cooling oceans and strong winds which will have an impact on British conditions. During La Niña winters it is more likely that the UK will see a cold start to winter, a milder end, and a wet Spring. A milder end to winter would bring relief and take any pressure of the gas reserves which are currently close to being 100% full. The current forecasts make it seem unlikely that a winter of sustained cold temperatures (when compared to historic averages) is forthcoming. A POWWR energy report released in October has shown that business energy spending is increasing with businesses using 4.1% more energy during the past quarter. Energy prices remain a key concern for many high-consuming industries. Since the end of February, prices have been steadily rising. The wholesale energy prices for gas on October 31 st were more than 80% higher than they were in late February. For a manufacturing business with a 3GWh summer consumption, the difference between purchasing next summer’s energy back in February compared to today, is a difference of approximately £350k.
September Review By Adam Novakovic September was a rollercoaster month for UK energy prices. In the wholesale market, prices dropped 20% from the start of the month through to the 19 th , only to then rise over the final 11 days of September -- undoing much of the previous work. In this article, we will review the factors behind these moves. As mentioned in previous months, the resumption of Norwegian gas production was always set to be a boost to the markets. At the start of the month, Norwegian supplies resumed. This, coupled with the healthy reserve levels, led the markets to believe concerns on the supply-side were overstated, and this caused prices to drop. There were some temporary increases in demand as the UK entered a cold snap a couple of weeks into September, but this was a minor speed bump in the path of the descending energy prices. One of the main fears surrounding energy supply is that no deal has yet been agreed to suitably replace the Russian gas that will cease being delivered when its contract terminates at the end of 2024. So, it was a big boost when news began to circulate that Ukraine and Azerbaijan had reached a deal where Ukraine would deliver Azerbaijani gas to mainland Europe. Prices continued to sink further as news spread, and this was seen as beneficial to the supply of gas throughout the continent. However, the Ukrainian news outlet that first broke the news was forced to issue a retraction as the Azerbaijani energy ministry denied the story and Ukrainian government sources clarified that no such deal was in place. This caused prices to rise sharply as the markets now had a renewed focus on the hole that may be left in the supply-side picture when Russia’s deal with Europe reaches its conclusion. A further catalyst for rising prices then came from the Middle East. While it appeared many Arab nations had been keen to pursue a peace deal, any hopes of conflicts subsiding quickly were ended with Israeli operations targeting Iran and Lebanon. It now seems inevitable that the conflict will spread and escalate during the coming months, and the shipping of LNG to Europe will almost certainly be impacted. Whilst it is impossible to accurately predict how geopolitical events will play out, this does seem likely to be a continued source of energy price rises for the foreseeable future. During September, it was revealed that the UK has the highest energy prices of all industrialised nations, more than double the per unit cost of Portugal and more than 3 times the cost of some Scandinavian nations. In not-unrelated news, OFGEM announced that UK energy debt has now reached £3.7bn, with energy debt having grown by 50% in the previous year. For many businesses, energy spend is an increasingly large concern that has no obvious solution. If you would like to discover ways to reduce your energy spend, or ensure you aren’t paying any more than necessary, visit www.seemoreenergy.co.uk or feel free to contact me at adam@seemoreenergy.co.uk . Outlook Even though the month has ended with sharply rising prices and growing fears surrounding energy supply, the outlook isn’t all doom and gloom. Initial long-term weather forecasts have shown that – while this winter may be colder than the previous year – it is anticipated to be milder than the average winter. With reserve levels looking healthy and Norwegian gas supply resumed, there doesn’t appear to be any need for fearmongering. While prices may be set to go higher on the news of further conflicts, there are reasons to be optimistic about the direction of energy prices beyond the coming winter. In 2025 we should see more LNG available to the market as new supplies (particularly in the US and Qatar) come online. And, whilst there may have been a false-start this month, any positive news regarding the replacing of Russian gas flows would also have the potential to significantly lower prices. If your business requires advice with its energy procurement, management, or planning, then don’t hesitate to contact Seemore Energy to speak to experienced advisors who can help you with bespoke strategies and advice that is tailored to your needs.
August Review By Adam Novakovic As summer draws to an end, gas and electricity prices have been rising. Often the threat of colder temperatures is enough to create fears surrounding energy demand, but this year the reasons for rising prices have little to do with predicted winter usage. This article will cover the stories behind why prices rose throughout August and look at which factors are likely to impact energy prices for the remainder of 2024. Wholesale energy prices peaked on the 10 th , shortly after Ukrainian forces had crossed Russian borders and captured the Sudzha gas metering station. Initially, there were fears that fighting near the station may have caused structural damage that could impact the flow of gas into Europe. The Sudzha station is part of the only pipeline importing Russian gas into the continent, responsible for the flow of almost 15 billion cubic meters of gas per year. In spite of Ukrainian forces taking control of the station, gas flows have been reported to be unchanged, although it has spiked fears regarding the vulnerability of the pipeline. Further east, conflicts between Israel and a number of neighbouring countries have become increasingly concerning. With Iran being dragged further into the conflict -- raising concerns of prolonged hostilities in the region -- there are growing worries about the safety of LNG shipments passing through the strait of Hormuz . These fears have been keeping prices high for the past few months and until the conflict looks closer to being resolved, this is a theme likely to be re-visited for the rest of the year. Even further east, Japan and China both logged record temperatures this summer. This heatwave has led to an increased LNG demand, increasing global prices as multiple nations bid for the available supply. This has contributed to the high energy prices in the UK, but is unlikely to be a factor that has a long-term impact, especially as global LNG supply is set to increase over the coming months and years. In recent years Norway has become the number one exporter of gas to Europe. However, in August, Norwegian gas fields entered a period of crucial maintenance work. This leads to a daily reduction of gas flow into Europe that is the equivalent to France’s daily gas consumption. Whilst the maintenance is essential and had been planned far in advance -- given the factors affecting supply from other parts of the world -- the market has been sensitive to the reduced Norwegian gas flows. These are set to continue into September, although normal service should be resumed before the end of the month. Outlook Looking ahead, Cornwall Insight’s forecast for energy prices has predicted that prices will remain above the pre-2022 levels for the foreseeable future. They believe the current trend of energy prices will continue into 2025 and beyond, with geopolitical unrest being a key driver behind prices. In the coming month we can expect to get the first long-term weather forecasts that will give an indication as to how cold or mild this winter is anticipated to be. With gas reserves still at very healthy levels, anything other than a particularly cold winter would likely be positive for energy prices. As with the majority of 2024, international conflicts impacting energy production and shipping are likely to be the main factors behind short-term price movement. However, with the Asian heatwave becoming less of a factor, and Norwegian gas flows expected to resume normal service, we should see prices start to drop towards the end of the month. Whether this begins a more sustained downtrend will likely depend on the development of the previously mentioned conflicts. If your business requires advice with its energy procurement, management, or planning, then don’t hesitate to contact Seemore Energy to speak to experienced advisors who can help you with bespoke strategies and advice that is tailored to your needs.
July was a month that saw a combination of the familiar and the new. England failing to win at a major football tournament, and a new government taking power. The continuation of narratives that have been catalysts behind energy price moves for most of the year, and fresh challenges that have impacted the global gas supply picture. The month started with some positive news. With Gazprom contracts -- that are vital to central and Eastern European countries – due to expire at the end of this year, there have been concerns about how this supply-shortfall could be filled. So, it was a boost when Ukraine announced that they would be able to assist in sending Azeri gas through their pipelines. This eased some fears, but the story is still developing, and there are worries that this could be a way of disguising Russian gas shipments to get around embargoes. A major threat to the global LNG supply came from the US. The 130km/h winds of Hurricane Beryl hit Texas after the first week of July, causing the Freeport LNG facility to ramp down production. This ramp down led to Freeport producing at levels significantly below capacity for over a week. This did have a negative impact on wholesale gas prices, but more alarmingly shows the vulnerability of relying upon US shipments. Beryl was a category one (the lowest of 5 levels) storm, and forecasters are warning that the upcoming hurricane season could be a particularly bad one. The bad news wasn’t just coming from the west in July. As has been a recurring theme this year, conflict in the Middle East played a large impact on prices as they began to rise. Israel launched significant offensives across the region, likely dragging Iran deeper into the conflict. It now seems inevitable that LNG shipments from the region will be impacted as this conflict looks set to grow throughout August. And closer to home there were issues with EDF’s nuclear reactors. Production was cut at the end of the month due to elevated water temperatures. For now, this is a small issue that may not impact prices, but if the water temperature forces a more sustained closure, then it could become a point of concern. Outlook While the news in July wasn’t the most positive, the outlook for coming months has a lot of factors that could see prices drop further. European gas reserves are now approaching 85% full. This is very high for this time of year and will likely mean there is no unexpected European buying pressure as we go into the colder months. A potential problem that could impact prices in August is the Norwegian gas fields scheduled maintenance. The maintenance operations are scheduled to begin in August and continue into September, although some experts are predicting that the current gas reserve levels should prevent the maintenance projects from having a serious impact on prices, as they had done in June. July also saw Greg Jackson, CEO of Octopus Energy, give a prediction that would have been pleasing to all Scottish energy consumers. He believes that if OFGEM regulatory changes are implemented, Scottish homes and businesses could receive free electricity during times of high winds. Currently, wind turbines shut down when there is an excess of supply to the grid, but a change in the way the grid is operated, and the introduction of dynamic pricing could see free energy during periods of high production. While there is no time-period outlined for when this could take place, we are likely to see more regional pricing become commonplace in the coming years. How energy prices move in the coming month will likely depend on the geopolitical situations in the Middle East, and whether the fears surrounding the temporary reduction in Norwegian output will outweigh the confidence in the high European reserve levels. Keeping an eye out for long-term weather forecasts will also be prudent. If your business requires advice with its energy procurement, management, or planning, then don’t hesitate to contact Seemore Energy to speak to experienced advisors who can help you with bespoke strategies and advice that is tailored to your needs.
June Review By Adam Novakovic The summer is now underway, with disappointing weather and England under-performing at a major football tournament, it may be understandable if a sense of déjà vu is in the air. This nagging sense of familiarity extended into the energy markets, with the major narratives impacting gas and electricity prices echoing the news of previous months. Wholesale energy prices stayed range-bound as indecision reigned in the markets. Traders seemed uncertain whether now is the time to submit buy orders or to be more cautious, and this led to prices remaining stable throughout the month. One of the major stories – which now seems to be a monthly occurrence – was unexpected outages impacting Norwegian supply. The Sleipner Riser connection hub suffered an outage at the beginning of the month, impacting supplies of LNG being delivered to the UK and mainland Europe. This news caused a small jump in gas prices and further highlighted the dangers of being reliant on gas imports. Norway was not the only country dealing with supply disruptions during June. The Chevron-owned, Australian Wheatstone LNG facility suffered a 2-week outage due to unexpected repairs. This facility is largely used to supply East Asia, and -- with numerous parts of Asia facing increased energy demand as a result of heatwaves -- the LNG market has become more competitive. The combination of increased demand and supply issues might be the primary factor for keeping prices at their current levels. With concerns about supply from the Middle East beginning to fade, it would have been reasonable to expect energy prices to fall if not for the complex supply/demand relationship being exacerbated by these issues. It would be no surprise to hear that small businesses are concerned by the prospect of rising energy costs. A recent survey by the Federation of Small Businesses confirmed that more than half of small businesses surveyed were worried about rising energy costs in the coming years. With energy costs having a significant impact upon the bottom line of many businesses, it has never been more important to ensure you are not paying more than necessary. If you would like a free market review drawn up for you ahead of your next renewal, email Adam@seemoreenergy.co.uk and we can have a market comparison prepared, allowing you to see which options would be best for you. Outlook Cornwall Insights lowered their price predictions for energy costs in the final quarter of this year. However, it does still represent an increase on their 3 rd quarter predictions. It is normal for there to be seasonal variation and for prices to rise in winter when there will be increased demand. Last year, prices fell into winter as Europe has gas reserve levels at near capacity. This has been achieved through purchasing between periods of heavy demand. This year, it appears that this may be more difficult to achieve due to increased Asian demand. If storage levels are not at the same levels as last year, we may see price spikes in December/January, spikes that could become more significant should weather conditions be worse than anticipated. If your business requires advice with its energy procurement, management, or planning, then don’t hesitate to contact Seemore Energy to speak to experienced advisors who can help you with bespoke strategies and advice that is tailored to your needs.
May Review By Adam Novakovic, Energy Markets Consultant In a month that saw the football season draw to a close with a surprise result in the FA cup final, there were surprises in the energy markets as prices continued to rise despite most European countries currently boasting healthy gas reserves. The month began with the Viking Link interconnector – which transports gas between the UK and Denmark – receiving a Guinness world record for being the longest land and subsea High Voltage Direct Current interconnector. However, the supply of gas from Scandinavia to the UK proved to be a negative story throughout the month. Norwegian gas fields: Kolsnes, Troll, Gassco all suffered from lower output due to maintenance during May. The timely resumption of production following maintenance has been historically described as “unreliable”, and the market responded with caution as prices steadily rose. The quick return to normal production levels will help to restore confidence in the market, but any further negative news is likely to be met with further rises in price. Closer to home, there was more negative news on the production side. In recent months UK energy production has dropped 6.8% when compared to the previous year. A large part of this is due to the increased focus on renewable energy sources. We also saw strikes announced at the Dounreay power plant in Scotland, which is set to contribute towards lower production levels in the UK. Another factor contributing to the rising energy prices has been due to changes in demand in the LNG (Liquified Natural Gas) market. Extreme temperatures in Asia have led to an increase in LNG purchases. This has occurred at the same time power issues impacted LNG production in Malaysia, and production was halted at an export facility in Australia. The only positive during this time was the Freeport facility in the US returning to full capacity and helping somewhat ease the strain in the LNG market. Further pressure on the supply of energy to Europe came from Austria. While many European nations stopped receiving gas from Gazprom in 2022, Austria continued to import gas from the Russian company. However, it now seems as though the Austrian government will look to end their reliance on Russian imports in a move that could have a ripple effect on gas prices throughout Europe. As in previous months, geopolitical instability is still a key factor in rising energy prices. Concerns about the Russia/Ukraine conflict persist, and new fears have emerged that Iran could block shipments passing through the Strait of Hormuz. 20% of the world’s LNG exports pass through the strait, with the UK being reliant on imports from Qatar. If this problem worsens, it will put further pressure on the LNG market and lead to prices rising further. Domestically, a study conducted by Centrica has shown that energy costs are still a big concern for UK businesses. One third of businesses surveyed stated that unpredictable energy costs have limited their growth in the past year. More than half of UK businesses are now looking at onsite generation as a way of helping reduce their energy costs. If your business is struggling with energy costs and you would like to talk about the options available to you, send me an email ( adam@seemoreenergy.co.uk ) and we can discuss the methods available to help lower your energy spend. Outlook OFGEM lowered their price cap for the 3 rd quarter of 2024 by 7%. Despite the factors that have negatively impacted prices in the last month, this shows there is still a consensus that prices will continue to drop for the remainder of the year. Consultancy firm Cornwall Insights also predicted a drop in energy prices during the coming quarter. Additionally, they foresaw a small price rise in October, before a further drop in January of 2025. Although it should be noted that they acknowledged the unpredictability of the energy markets at this time. One of the main factors that will affect prices in the coming month will be how quickly full production can be resumed in Norway, with less downtime for maintenance expected in June than in May. If full output can be quickly resumed and the LNG market doesn’t suffer any further issues with supply then it’s likely prices will fall, however, news out of the Middle East should be watched closely, as further disruptions to imports from Qatar could see prices rise further. If your business requires advice with its energy procurement, management, or planning, then don’t hesitate to contact Seemore Energy to speak to experienced advisors who can help you with bespoke strategies and advice that is tailored to your needs.
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