NUS Consulting Group

What is a flexible supply contract?

In deregulated markets, energy suppliers offer different types of supply contracts. For larger commercial and industrial businesses, the most common option selected is a flexible supply contract. A flexible supply contract establishes all of the terms and conditions for the supply of energy between the consumer and the energy supplier, except for the price of the commodity. In a flexible contract, the consumer has the option to purchase commodity based on exchange pricing, for a month, quarter, season, or calendar year. If the consumer elects not to purchase a commodity in advance of delivery, flexible contracts contain a market-based pricing mechanism for energy consumed.

Why do you need Purchase Advisory services?

Flexible contracts allow larger consumers the ability to make multiple commodity purchases over time instead of purchasing all of their contractual requirements in one day. Any experienced energy trader will confirm that it is statistically impossible to pick the bottom of any market cycle for a commodity as volatile as energy. In addition to allowing multiple purchases and weighted average pricing (WAP), flexible contracts also allow large consumers the ability to assume a level of market exposure by simply not purchasing all of the requirements for a given period.

The benefits, however, come with specific demands on the consumer. Specifically, the consumer is required to make certain decisions when managing a flexible contract.

  1. Timing. When should commodity purchases be made?
  2. Duration. For which periods (i.e., month, quarter, year) purchases be made?
  3. Amount. How much of the total requirement should be purchased?

NUS’s energy risk management team works with clients to understand their energy sourcing goals. With this understanding, the team monitors local market pricing and advises clients on when to purchase, for which periods, and in what quantities. In short, NUS assists consumers with flexible contracts by providing support to answer these three critical questions. Clients are not obligated to implement NUS’s recommendations; the goal is to offer clients technical market commodity purchasing support to optimise their flexible supply contracts according to their objectives.

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