Energy procurement can feel complex, especially in today’s volatile market. With fluctuating prices, multiple contract options, and increasing pressure to manage risk, creating an effective energy strategy for your business can seem like a daunting task.
From choosing the right contract type to balancing risk and aligning with your wider business goals, there’s a lot to consider. In this guide, we break down everything you need to know about energy procurement, helping you understand the process and build a procurement strategy that works for your business.
What is Energy Procurement?
Energy procurement is the process of finding an energy contract for your business utilities. It involves assessing your individual needs and goals and comparing suppliers and contracts, to find the most suitable strategy and get the best rates.
Whilst many businesses find themselves settling for the first rates they’re offered, developing a business energy procurement strategy can help you find the most reliable and cost-effective options, designed to work with your unique business goals.
Finding the right approach involves careful planning and examining your current energy usage, as well as considering your future goals and any sustainability targets you currently have in place.
A strong commercial energy procurement plan will involve monitoring the market and taking advantage of price dips as well as adjusting usage patterns to make use of off-peak rates.
Who is Energy Procurement For?
Strategic energy procurement can work for any business, although the biggest advantages are for large organisations with high or complex energy usage.
What Are the Benefits of Commercial Energy Procurement?
Having a robust, watertight energy procurement plan in place can offer a number of benefits for businesses.
- Reduced exposure to market volatility – The energy market can be volatile, and a structured energy procurement plan helps businesses protect themselves from price spikes by locking in rates at the right time, creating greater stability and protection.
- Better forecasting and budgeting – A procurement plan gives businesses better visibility over future energy costs, allowing them to plan budgets more accurately. This helps improve financial control and long-term planning.
- Less hidden charges – A robust procurement strategy ensures contracts are fully understood, reducing the risk of unexpected fees or hidden clauses with unfavourable terms. This provides greater cost transparency and confidence in contracts.
- Regulatory compliance- Energy procurement and careful planning help businesses stay compliant with changing regulations and reporting requirements, reducing the risk of penalties.
- Data-driven decisions – Using accurate consumption and market data allows businesses to choose procurement strategies that best suit their usage patterns and business goals. This supports smarter purchasing decisions and avoids over- or under-buying energy.
- Sustainability progress – Energy procurement plans can be designed to factor in a business’s sustainability goals, helping to meet sustainability targets and demonstrate progress toward ESG or net-zero commitments.
- Stronger negotiating position – Planning ahead enables businesses to approach the market proactively rather than reactively. This puts them in a better position when negotiating prices and terms with energy suppliers.
Energy Procurement Strategies for Businesses
There are a number of different energy procurement strategies, and every business is different, so what works for one, may not work for another. The best procurement strategy for you will depend on your goals, as well as your ability to manage risk.
Some of the common types of energy procurement include:
Fixed procurement contracts
These contracts allow you to lock in a single energy rate for the duration of the term. They provide budget certainty and protection against sudden price spikes or changes in the market. However, they are not as flexible as other options, meaning if market rates drop, you will still be paying your agreed-upon price. Many businesses choose to sign fixed contracts when market prices drop, to secure more favourable rates.
Flexible procurement contracts
Flexible procurement allows you to purchase energy in multiple tranches over time. This allows businesses to take advantage of changes in the energy market, buying energy when prices dip. Although this method can offer greater potential for savings, it can also pose increased risk, so it is important to carefully track market trends.
Within flexible contracts, product setup varies by fuel type and consumption profile. For power flexible products, we advocate the use of Shape Fee structures with volume tolerance, which provide certainty over contracted volumes while allowing a defined flexibility band around forecasted consumption. This enables clients to use slightly more or less energy than forecast without incurring penalties. For gas, where demand is typically more volatile and harder to predict, we generally recommend the Cash-Out Flex product. This option is simpler to manage, allowing up to around 90% of forecasted consumption to be hedged and traded, with the remaining volume settled via the cash-out mechanism. This approach helps mitigate the impact of forecasting errors whilst still enabling clients to benefit from market opportunities.
Pass-through flex contracts
This strategy advocates the pass-through charging of third-party costs within flexible contracts, as it helps prevent suppliers from embedding large risk premiums into forecasted rates. By allowing these costs to be charged as they are incurred, rather than estimated in advance, organisations can benefit from more transparent pricing and potentially achieve cost savings over time. However, this approach also introduces a degree of exposure to market volatility, as charges may fluctuate when forecasts are revised.
How to Create the Right Energy Procurement Strategy for Your Business
Before choosing an energy procurement strategy, there are several steps a business should take, to ensure they are taking the right approach for their needs and goals.
Understand your energy profile
A clear understanding of how and when energy is consumed forms the foundation of any effective procurement strategy. Key factors to consider include:
- Annual consumption (MWh/therms)
- Load shape (baseload, peaky, seasonal, volatile)
- Operational drivers (production peaks, weather dependency, shift patterns)
- Flexibility needs (capacity to shift usage or not)
- Forecast accuracy (how predictable the demand is)
Decide on an approach
Most commercial energy procurement strategies will fall into one of three categories:
- Fully Fixed
- Flexible / Hedged (Flex Strategy)
- Hybrid Products (part fixed, part flexible)
Assess your risk appetite
You should be clear about your:
- Tolerance for price volatility
- Budget certainty requirements
- Appetite to participate in market movements
- Internal governance (who signs off what and when)
- Ability to make decisions quickly (market opportunities don’t wait)
Consider sustainability and net-zero objectives
A modern energy procurement strategy should support your wider sustainability initiatives and align with your net-zero plans and carbon reduction targets. This may influence product selection, contract length, renewable sourcing options, and reporting requirements, ensuring that energy purchasing decisions contribute positively to long-term environmental goals rather than working against them.
Select the right supplier or energy partner
Choosing the right supplier is about more than securing the lowest price. Service quality should be a primary consideration, as poor supplier performance can create operational and financial risk. Effective energy suppliers must be able to manage billing accurately, resolve queries promptly, support smooth onboarding, and provide reliable data and reporting. A competitive price offers little value if the supplier cannot deliver the level of service required to manage the portfolio effectively.
Common Challenges in Energy Procurement and How to Overcome Them
Creating a commercial energy procurement strategy is a great way to save on energy costs and protect your business, however, there are still a number of potential challenges you may face along the way.
- Lack of understanding or support – For businesses that do not have an in-house team to coordinate energy procurement can face added risk. Partnering with a trusted energy consultant provides expert guidance and helps avoid costly mistakes.
- Market volatility –Energy prices are highly unpredictable and can fluctuate significantly, making procurement more challenging. As a result, many businesses choose fixed-rate contracts to protect against sudden price increases and improve cost certainty.
- Complex contracts and unclear terms – Energy contracts can sometimes be difficult to interpret, with hidden clauses or pass-through charges that increase costs unexpectedly. Working with an experienced energy consultant helps ensure transparency.
- Poor timing of purchasing decisions – Purchasing energy at the wrong time can result in higher energy costs over the duration of a contract. A well-planned energy procurement strategy and careful market monitoring can help businesses buy energy at more favourable points.
- Limited access to competitive suppliers – Many businesses rely on a small number of suppliers, reducing competition and value. An energy consultant can allow businesses access to a wider supplier network, often with more competitive rates
- Inaccurate or incomplete consumption data – Without complete and reliable usage data, businesses risk overpaying for their energy, but with detailed data analysis as part of a procurement strategy, businesses can ensure accurate billing.
- Changing regulations and policies – Energy legislation and levies are frequently reviewed and changed, creating compliance and cost risks for businesses. Ongoing expert guidance helps businesses stay compliant and avoid fines or penalties.
- Balancing cost and sustainability goals – Businesses may struggle to juggle managing energy costs with working towards sustainability targets. By creating a structured energy procurement plan, they can better balance the two.
How Do Market Trends Impact Commercial Energy Procurement Strategies?
One of the most significant factors that businesses must consider when creating a commercial energy procurement strategy, is the volatile nature of the energy market. It is important to stay-up-to-date with market trends and movements to ensure you are continuously improving your strategy and choosing the best options for you.
Some of the key factors that impact energy market price fluctuations are:
- Supply and demand – When energy demand exceeds supply, prices rise, whilst periods of lower demand or increased generation can lead to lower prices.
- Geopolitical events and global conflicts – International tensions or conflicts can disrupt energy supply chains, particularly for gas and oil, adding to price volatility.
- Weather patterns and seasonal demand – Extreme weather and seasonal changes influence energy consumption, with colder winters and hotter summers often increasing demand and in turn, prices.
- Government policies, regulations, and environmental levies – Changes in legislation, taxes, and environmental schemes can directly impact energy costs.
- Infrastructure constraints and network issues – Grid limitations, maintenance, or outages can restrict energy supply and lead to increased costs.
How Consultus Can Help You with Your Energy Procurement Strategy?
With an unpredictable energy market, it is vital to have a partner who can support you in navigating a complex and volatile market.
Using a tailored approach, we can help you design a procurement strategy that aligns with your energy and overall business goals.
To find out more about how we can support you, and to discuss your options, get in touch with a member of our team today.