Given the current volatility in the energy market it is more important than ever to consider the volume tolerance in your fixed energy contract. In years gone by this was a clause only acted on by energy suppliers on rare occasions. With the energy market being so volatile, it is likely that energy suppliers will use every tool in their arsenal to try and bear down on costs - including their monitoring of these volume tolerances more closely.
What are volume tolerance clauses?
Volume tolerance clauses, sometimes referred to as a ‘take or pay’ clause, are a part of any energy contract you may sign. What it means is that you must keep your energy usage for that supply within a tolerance of the kWhs quoted on your supply contract. Most suppliers set this at an 80/120 threshold meaning that you can use a minimum of 80% of your calculated annual energy consumption and a maximum of 120%.
Why do the suppliers include these clauses?
In a fixed energy contract, the supplier purchases enough energy on the day your contract is secured to cover your expected usage. If you used more energy than stated on your contract, they are forced to purchase the remaining energy at whatever the market rate is when the contract ends. If you have used significantly less, they then sell back this energy at whatever the market rate is at the end of the contract. This means that the supplier could make a loss if the market is in a less favourable condition when they either buy more or sell back the energy – this clause means they can pass on any potential loss of revenue to you, the consumer, should they choose to.
How you can protect yourself if you are planning significant changes that will impact your usage?
Certain things may affect your consumption during a fixed contract such as:
- Installing generation such as solar panels on your site
- Reducing or increasing production
- Adding in new equipment
Knowing you have any these changes on the horizon means that we can help you to assess the risk and request for these volume tolerances to be either adjusted or removed. Removing these does mean the supplier may add a slight uplift in for risk mitigation, however the benefit of removing the risk of a significant charge further down the line could be very much worth your while.
Please call our Commercial contracts team on 024 7669 8891 if you have any further questions and to learn how you can benefit from adjusting or removing the volume tolerance on your own contract.