Load Flexibility is a feature of most commercial & industrial (C&I) electricity contracts and is an important factor to consider when choosing an electricity retailer in the large market.
Going down the tender route gives businesses security, knowing that they have purchased at a fixed price, allowing them to budget and forecast.
But what some businesses don’t factor in is the penalties they might face if they exceed or fall short of the amount of energy they agree to purchase.
Leading Edge’s energy management consultants don’t just compare retail prices. We ask questions about their business plans, energy project plans and help the customer choose a retailer that is right for them.
We also provide a comparison of the flexibility of each retailers’ contracts, so they know exactly what they are signing up for.
What is load flexibility and load variation?
Load flexibility clauses are a feature of most Commercial & Industrial (C&I) electricity supply agreements.
It refers to the amount a customer is able to fall short of or exceed their contracted energy load. In simple terms, the clause refers to the tolerance a retailer has towards a customer which fails to consume or exceed the contracted volume of electricity for a given year of the electricity contract.
Why does it exist?
Based on this agreement, the retailer is buying electricity forward to supply the agreed volume of electricity into the future.
Failure by the customer to consume the volume of electricity agreed, leaves the retailer potentially exposed to a surplus or shortfall of supply.
The clause provides protection to the electricity retailer by ensuring that they have recourse should the customer not consume the volume of electricity (annually) that they have agreed to in the electricity supply agreement.
Why is the retailer sensitive to this? Electricity cannot be easily stored if the retailer is left with surplus supply and if they are undersupplied, then the retailer may be forced to purchase from an expensive spot market, unhedged. Spot market prices refer to prices charged when energy is bought in real time.
What are the risks of breaching a load flex clause?
- Financial penalty calculated based on cost incurred by the retailer
- Retailer may require contract renegotiation, based on current futures prices which may have gone up since the original contract rates were agreed
Who is most at risk?
- Large commercial and industrial energy customers which present a higher risk to energy retailers, should the usage targets be missed.
- Businesses which have fallen short of consuming the volume of electricity agreed to. This leaves the retailer with expensive surplus power that they still need to sell, potentially at a loss due to rates going down in subsequent period to contract date.
- Businesses who signed a long-term agreement, are planning energy generation or efficiency projects and did not consider the effect on future energy use projections agreed in the energy supply agreement.
- Businesses unsure about their future energy requirements but have agreed to an extended term electricity supply contract.
- Businesses signing with certain retailers who offer less favourable load flex terms
What can be done to manage the risk:
- Consider future business requirements, plans to scale up or down
- Consider the age of plant and equipment and impact of future upgrades or wear and tear
- Consider future energy projects and the impact they might have on consumption
- Consider lease-term
- Choose a retailer that can cater to your requirements
The simplest way to manage load flexibility risk:
The most effective way to manage risk is to sign with a flexible retailer which will not come down hard on your business if you exceed or fall short of your obligations.
Retailer load flexibility index
(Contracted load < 50 gWh)
(Contracted load < 5 gWh)
(Contracted load < 5 gWh
|4th||Alinta||-20% / +20%|
|Simply Energy||-20% / +20%|
|7th||Origin||-10% / +10%|
Note: The above table is based on standard offers issued by the respective retailers. More flexible terms can be negotiated however this is likely to impact the rates offered.
Do you want to learn more about Load Flexibility?
Energy rates, although important, are just one measure of a retailer’s value. Contract terms such as load flexibility, environmental charge pass-throughs, roll-in/roll-out provision, blend & extend options, credit terms, payment options, late payment fees and credit card fees are just some ways in which electricity retailers may differ in value.
It’s important to be clear on what’s available and what you’re agreeing to. Aside from asking the necessary questions so we can match your business with the most suitable energy contracts, Leading provides a detailed comparison of a broad range of retailer contract terms as part of our tender energy tender process.
Remember, our services are free to try an obligation free. So we only succeed when you do. If you want to learn more, call us on tel: 1 300 852 770 or send us an email on firstname.lastname@example.org