Ben Brading 5 min read

Business energy procurement strategies

Business energy procurement refers to the process of purchasing electricity and gas for companies. The main objectives are reducing costs, securing future prices, and lowering carbon emissions.

This guide explains common energy procurement strategies used by British businesses, covering methods for both small and large companies.

Below is a summary of the main goals of energy procurement, with links to an explanation of the strategies used for each.

The aims of business energy procurement

Minimising energy costs – Reducing the business electricity prices and commercial gas rates in both short, medium, and long term.
Securing energy prices – Mitigating the risk of price volatility by reducing exposure to external events that can influence future energy costs.
Sustainable energy purchases – Reducing the carbon footprint associated with electricity and gas supplies to meet sustainability goals.

What is business energy procurement?

Before we dive into the detailed strategies of business energy procurement, we will begin our guide with some of the basic principles of business energy procurement.

Understanding energy requirements

A business energy procurement strategy can only be effective if you can accurately measure and forecast energy consumption.

Fixing energy prices requires estimating future consumption for each business electricity connection and commercial gas connection your business uses.

The best way to estimate future energy consumption is to analyse your current consumption with automatic meter readings.

Small businesses should consider a free upgrade to a smart business energy meter to receive daily automatic meter readings.

Larger businesses should already have half-hourly electricity meters and advanced business gas meters that take automatic readings.

We recommend using business energy monitoring software to analyse and forecast energy consumption requirements to support your energy procurement strategy.

The role of business energy suppliers in energy procurement

In Britain, businesses cannot purchase electricity and gas directly from generators; only licensed energy suppliers can deliver it to commercial properties connected to the grid.

Regardless of your energy procurement strategy, you must arrange contracts with licensed business electricity or gas suppliers.

It’s crucial to carefully assess these suppliers because if one goes out of business, any fixed contracts will be cancelled, impacting future energy procurement.

The role of brokers in business energy procurement

Business energy brokers partner with multiple suppliers to help businesses secure competitive energy prices.

By working with a broker, businesses can access the best deals available in the market. It’s important to note that brokers earn a commission, which is typically included in your bills.

Larger businesses with their own procurement teams may not require a broker’s services, as they can negotiate directly with suppliers.

Minimise business energy costs

The primary goal of all business energy procurement strategies is to reduce the purchase price of electricity and gas.

In this section, we will discuss the most common strategies for obtaining the lowest possible energy prices.

Leveraging market competition

In the deregulated energy market, businesses have the option to choose between a range of competing suppliers.

At the heart of a business energy procurement strategy, it is vital to request quotations from multiple suppliers to drive down prices.

It is important to consider that energy prices fluctuate, and quotations are only available for a limited time, so be prepared to review and accept offers promptly.

Renewal management

The most effective way to minimise energy costs is to carefully avoid out-of-contract or deemed contract rates for any of your properties.

Negotiated business energy contracts are significantly cheaper than the automatic rates that apply if you do not have a contract with your supplier.

At the heart of every energy procurement strategy is ensuring that competitive contracts are secured for each MPAN and MPRN before the termination window closes.

Marketing monitoring

Geopolitical events significantly impact the underlying cost of electricity and gas.

Analysing energy market trends is fundamental for businesses to make informed decisions regarding energy procurement.

We recommend staying up to date with market developments by setting up energy market news alerts or by subscribing to regular updates from your supplier.

Securing energy prices

Energy price volatility is the most significant risk in business energy procurement. A strong procurement strategy fixes the cost of electricity and gas for future years, protecting businesses against price fluctuations.

The energy crisis in 2022 saw prices increase by over 400%, leaving businesses that had not secured future energy prices exposed to rising costs.

In this section, we will cover the strategies used by small and large businesses to secure future energy prices.

Fixed business energy contracts

The simplest way to secure future energy costs is to enter into an energy tariff where the unit tariff cost per kWh of energy consumed is fixed throughout the contract.

Business energy suppliers offer the following tariffs that fix the unit cost per kWh of energy consumed for terms between one and three years:

Fixed energy tariff – The unit rate per kWh is entirely fixed throughout the contract.
Pass-through tariff – The wholesale element of energy costs is fixed throughout the contract.

💡 We specialise in helping companies find the cheapest fixed business energy tariffs on the market. Use our business energy comparison service to compare prices today.

Future energy purchases

Some business energy suppliers provide sophisticated energy procurement platforms for large business customers, offering real-time trading on future purchases of electricity and gas.

This allows businesses to take advantage of real-time dips in prices to secure future energy purchases and enables them to execute their own energy procurement strategies.

Corporate Purchase Price Agreements

A Corporate Purchase Price Agreement (CPPA) allows large businesses to agree to purchase electricity directly from generators, such as UK wind farms.

A CPPA enables a business to secure electricity for decades into the future and represents a tangible investment in the UK’s renewable energy infrastructure.

A CPPA is an effective method of fixing future electricity prices as well as securing carbon-free electricity supplies.

Sustainable energy purchases

A business energy procurement strategy should support a business’s Corporate Social Responsibility (CSR) targets and environmental goals.

In this section, we will summarise how businesses tailor their energy procurement strategies to eliminate the carbon footprint associated with their electricity and gas consumption.

Green business energy tariffs

A green business energy tariff is the easiest way for a business to purchase carbon-neutral energy supplies.

In a green tariff, your supplier will guarantee a carbon-neutral supply as follows:

Renewable business electricity tariff – Electricity supplied will be generated from renewable energy sources, typically wind, solar, and hydropower.
Green business electricity tariff – Electricity supplied will be generated from renewable sources and UK nuclear power stations.
Green business gas tariff – The carbon footprint associated with natural gas will be offset by carbon credits or the use of biogas.

Direct renewables investment

Businesses can invest directly in generating their own renewable power. This can be achieved in two ways:

On-site electricity generation – Install a solar panel array at your property and use a Smart Export Guarantee to feed excess electricity back to the local distribution network operator grid.
Off-site electricity generation – Use a Corporate PPA (see more above) to invest in large-scale renewable electricity generation.

Renewable energy certificates

Businesses can indirectly offset the carbon footprint associated with electricity and gas by purchasing Renewable Energy Credits (RECs).

Renewable Energy Credits allow businesses to benefit from renewable energy without directly sourcing it. Each certificate represents a megawatt-hour (MWh) of electricity generated from renewable resources.