Blend and Extend in the Energy Market

Blend and Extend in Energy Market: A Worthwhile Pivot or Not?
A pivotal move in any industry is the adoption of strategic methods that enhance efficiency and profitability. In the highly competitive and unpredictable landscape of the energy market, one such buzzword that’s currently making rounds is blend and extend.
What on Earth does it mean, and is it worth the hype? In the simplest terms, it's a contract agreement strategy that can aid both energy buyers and sellers. But let's dive in a bit deeper.

Blend and Extend: Quick Overview
Blend and extend is a contract restructuring approach used across different industries, but it's relatively new in the energy market. It allows the energy buyer and supplier to agree on an extension before the expiry of the current contract at a blended rate, which includes the remaining term's rate and the extension period's rate.
Useful? Certainly. Confusing? Possibly! Let’s blow away the mist.

Blend and Extend in Action
Energy buyer and supplier enter an electricity contract for a specified period.
The market rate increases after some time before the contract expiration date.
The buyer is interested in extending the contract at the current rate to avoid future price hikes.
They negotiate a blended rate— a mix of present contract rate and future market rate.
Result? The buyer secures an extended contract at a favourable rate. The supplier secures a loyal customer for an extended period. A win-win!

Can it get any better? It might, considering the benefits of such an arrangement.

Benefits of Blend and Extend Strategy
Reduces Risk: This strategy can mitigate risks associated with unpredictable market rates.
Financial Savings: It aids businesses in budgeting accurately and potentially saving costs.
Fosters Partnership: It strengthens the relationship between the energy buyer and supplier.
Is it all rosy? Not quite! Like every coin, it too has a flip side.

Downsides of Blend and Extend Strategy
Future Market Rate Drop: You might regret your decision if market rates drop after you've extended your contract at a higher rate.
Supplier Dependence: You could be tying yourself too closely to a single supplier when diversification might be healthier.
So, is the blend and extend strategy in the energy market worth it?

Blend and Extend in Energy Market: Is It Worth It?
It's a little like asking if an umbrella is good: brilliant if it's raining, useless if the sun’s out! But here's the deal—for energy buyers in a volatile market, hedging risks with a blend and extend strategy might be just what your business needs.
However, it would be wise to assess your unique business needs, the current market scenario, future projections, and your rapport with the supplier before jumping on the bandwagon. Blend and extend isn’t magic; it's strategic—if used wisely.

Blend and extend strategy in the energy market mirrors the old English idiom: one man’s meat is another man’s poison. Its suitability is as varied as the businesses it serves.
Ultimately, your business ingenuity should decide if it's your stairway to heaven or a highway to hell. And only a well-conducted risk-assessment can guide that decision with authority and trust.

Contact us today to discuss the Blend and Extend on 01432 378690

Published by Utility Helpline on (modified )