Big British companies should enjoy cheaper energy next year but could miss out if they haggle any longer over annual contracts. After tumbling last winter, one of the warmest on record, wholesale gas and power prices have risen in recent weeks and those who have not yet settled their contracts could lose out as a colder winter approaches. Britain’s largest power and gas users have traditionally negotiated annual contracts with their suppliers in early autumn or spring, while more and more are buying on flexible contracts to try to cut costs. A slide in wholesale prices since new gas import pipelines boosted supplies last autumn means big consumers should be getting 10-15 percent off their bills, compared to fixed contracts signed last year, said Jeremy Nicholson, director of the Energy Intensive Users Group. “The prospects certainly for this winter coming and the one after look pretty reasonable, certainly much better than the situation we were in two winters ago… although there has been some tightening in the forward market in recent weeks,” he said. Damien Cox, a senior energy analyst at John Hall Associates said that while annual contracts should be cheaper than a year ago, consumers should grab those savings quickly. “Our advice is that if you are making a saving then you should really take that,” he said. “You hold out for the bottom of the market, but that was actually reached back in February.” Cox said strong oil prices and rising coal prices had helped push up energy costs in recent weeks U.S. light crude oil prices soared to around $82 a barrel on Thursday, a dollar below the record high seen last week. The UK’s Met office on Thursday said this winter would probably be much colder than last, meaning more gas demand for heating, while Nicholson warned that much higher prices for carbon emissions rights for next year would also probably lead to higher electricity costs. Britain’s biggest energy supplier, Centrica, said the majority of its business customers were already enjoying lower energy costs but agreed the market bottomed out in the first quarter. “Most buyers have concluded negotiations already but a proportion who haven’t may now be caught out by the volatility of the market and may not benefit from same falls in prices as those who bought earlier,” a spokesman for Centrica said. Soaring forward gas prices in the years up until last autumn, on growing concern over declining UK production, spurred companies to take the risk of buying it for themselves on spot markets. And suppliers increasingly offer customers the option of buying a portion of their energy on those markets. Around a third of Centrica’s business customers now buy their energy on flexible contracts to spread their risk, which is part of a wider trend. “For the very large industrial consumers amongst our members, particularly on gas, there has been a trend towards buying on a day-ahead basis, or at least on a contract that allows you to buy on a day-ahead basis,” said Nicholson, who represents some of Britain’s biggest energy users. Residential customers have to wait for their suppliers to pass on savings from falling wholesale markets but are also protected from price volatility. Playing the spot markets can be cheaper for companies big enough to employ people to monitor them constantly and manage the risk because they can get cheaper energy as soon as wholesale prices fall, rather than waiting for their suppliers to pass on the savings. “It has turned out to be more economic, on average,” Nicholson said. “But you don’t get something for nothing and the reason it’s cheaper is because the customer bears more of the risk.” Some companies have even decided they would rather risk having to shut down their production if short-term energy prices rise too high than be tied to uncompetitive long term contracts. And even if the spot market goes against them, big consumers are unlikely to go back to relying on fixed contracts again. “People have changed their buying strategy,” said Cox. “Once people have entered into that sort of culture, I don’t really see people going back.”

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