This is the seventh article in a series in which MWh answers questions that energy and finance experts frequently ask about energy. Today we cover the question of what contract term length is best, and how should energy and finance professionals evaluate the appropriate term length?

Answer? It depends!

Some of our clients have spent a great deal of time, analysis, thought and effort in trying to discern the absolute best strategy for their organization. Other people don’t have the time or resources to conduct such an analysis.

Here are some questions that can help you determine the best purchasing strategy and time frame for purchasing.

• What is your organizational goal? Do you and your colleagues want price certainty? Or do you want to pay the lowest rate over time?

• Are there any major changes planned to your infrastructure or to your facilities (a sale? energy usage changes? new construction?) that would impact your costs or usage profile? What about impacts on your contractual relationships with an energy supplier

• Are there any major regulatory or market issues that may impact energy markets in your area? If so, does that suggest that you should extend your contract for a longer term? Or should you shorten your contractual cycle?

• How do today’s forward curves impact your costs over time? Are forward prices lower in the latter months? Or higher than they are today?
  1. Can you purchase an energy contract at or below your currently contracted rate?
  2. If you can withstand market increases and decreases, then how much volatility can your budget take?
  3. How does forecasted volatility compare to what the market has seen historically? (All of these analyses can be calculated and presented to buyers by software like the MWh, or through a consultant or adviser.)
  4. Does your cost forecast reflect a budget number that works for your organization?

Coming next week: Some specific examples of how these factors impact cost— usage, market volatility, etc.

Bottom line for energy and finance professionals: There is no one-size-fits-all answer to the “right” term length for a client. Every buyer’s risk profile is different. Every buyer’s usage and cost profile is different. There are strategies that can be generalized across organizations, but there is no one answer to the question of strategy or term length.