Though energy contract auto-renewal sounds like something that brings convenience, it can be a bane in disguise for many businesses. When your present fixed-term energy contract finishes, the provider automatically renews the contract into default offers. The standing or default offers could be 20-30% more expensive than your previously negotiated cost. As a result, businesses observe a sharp rise in their monthly energy utility bills.
According to the Australian Energy Regulator (AER), nearly 35% of small-scale enterprises remain on their default energy plans year after year due to auto-renewal. Some of the businesses are not even aware of the fact that they have renewed some unfavourable plans after the completion of the present energy contract.
Overall, auto-renewal often significantly mars the chance of negotiating with the providers. Businesses can procure energy deals at better rates by negotiating with their present provider. Alternatively, they can also switch to another provider for a cheaper deal. The global energy price is volatile since it depends on multiple factors. In this article, find a guide on regaining control over your yearly energy budget by dealing with the auto-renewal correctly.
A Guide to Auto-Renewal Energy Tariffs
As the term suggests, auto-renewal tariffs are the energy plans which get renewed after a fixed contract term completes. The energy companies do not need a separate customer mandate for the auto-renewal since the consent was taken during the last contract. If a business fails to formally inform or notify stopping the auto-renewal, the provider can automatically renew the contract for another fixed period of time.
Since energy prices are dynamic due to the volatile nature of the market, providers often launch new tariff plans, cancelling the previous plans. In such cases, providers upgrade their customers to a high-value plan during the auto-renewal if the existing plan has become void. Even if you get renewed to the same plan, you may end up paying more since the last time you negotiated for a cheaper price. This time service provider has renewed the plan, omitting the negotiated terms.
When Does Auto-Renewal Happen?
Auto-renewal happens when the existing energy plan completes the term period mentioned in the contract. Many businesses do not track their energy plan expiry dates. As a result, the energy providers automatically renew the plans to ensure that the businesses obtain uninterrupted service.
- No Action at Contract Expiry: When your business does not take any action on energy contract expiry, the provider can auto-renew the contract by upgrading to a new tariff or keeping you on the same tariff plan.
- No Formal Notice: Sometimes, businesses initiate measures to stop auto-renewal before the energy contract term ends. However, following the steps properly is crucial. For example, a formal notice should be given to the provider.
- Rolling Contracts: Some energy contracts come with rolling contract terms, leading to auto-renewal of the existing plan. This will lock your business into another fixed period of contract. Apply formally to stop the auto-renewal of the rolling plans.
- Inaction of the Broker: Sometimes, businesses hand over their energy management to a broker or a dedicated manager. Inaction of the broker or manager in tracking the contract expiry and taking the right measures to stop renewal leads to auto-renewal.
The Risks of Ignoring Auto-Renewals
Ignoring the energy plan’s auto-renewal can cause multiple hassles for businesses. In most cases, you will pay a higher price for energy consumption after being auto-renewed.
1. Increased Business Operational Cost
When an energy contract gets auto-renewed, businesses lose the negotiated contract price from the last time. As a result, there could be a rise in electricity bill costs by 10-15%. The cost may further rise if the energy provider has moved you to a higher plan because the old plan is void or non-existent. In any case, the auto-renewal of the energy plan impacts operational costs.
2. Locked-in Contracts with Poor Rates
In most cases, the auto-renewed contract comes with fixed terms, which last from 6 to 12 months. You cannot switch the plan or provider during this locked-in period since there is a hefty exit fee. Therefore, many businesses get trapped in high-cost energy agreements for 6-12 months, even though they can find cheaper deals from other providers.
3. Difficulty in Switching Providers
As stated above, the locked-in period makes it difficult to switch providers. Businesses that do not track the energy contract expiry date often fall into this loophole. Despite being offered discounted energy plans by other providers, the businesses need to wait till the contract term completes after the auto-renewal.
4. Lack of Flexibility in Future Energy Strategy
Energy contract auto-renewal often leads to the jeopardy of continuing with outdated energy products. Since businesses have to pay high energy tariffs after auto-renewal, it becomes difficult for them to plan and invest in solar.
Strategies to Avoid Auto-Renewal Pitfalls
Tracking the contract renewal date is the best way of avoiding the auto-renewal pitfall. However, many businesses fail to do this due to an absence of proper management in place. Businesses that adopt the following strategies will succeed in tracking their energy auto-renewal.
1. Contract Date Monitoring
Use technology to monitor the contract expiry date. For example, you can use your smartphone to create a reminder 30 days before the contract expiry. Getting reminded of contract expiry before 30 days will help you to search for cheaper plans with ample time in hand.
Moreover, you will have the time to negotiate with your present provider for a cost-effective plan renewal. In case you do not renew, you should submit a notice to stop auto-renewal. Having adequate time on hand will eventually help you in this process.
2. Stay Updated on New Tariffs
The global energy market is volatile, which leads to frequent price fluctuations. Depending on the demand and supply, the energy companies often launch unique tariff plans. The newly launched tariffs may be cheaper than your existing plan. Nevertheless, the new plans could include certain benefits that are not present in your existing plan. For business energy plan comparison, you can visit Connect Business Energy, the place to find the cheapest plan for your business.
3. Hire a Dedicated Manager or Broker
A dedicated manager or broker can help your business track the energy plan contract expiry with precision. At the same time, the broker will search for the best available plans according to your business size, needs, and other factors. Hiring such a dedicated manager or broker will help you avoid the unregulated energy expenses due to automatic plan renewal.
4. Keep Cancellation Notice Period in Mind
If you want to prevent the auto-renewal of your current energy contract, you should notify the service provider at least 30 days before. Ideally, it is more suitable to notify the provider 90 days before your plan’s expiry. When your business signs an energy tariff contract with the provider, the agreement may also mention the auto-renewal cancellation deadline. Following the deadline as per the agreement is essential to ensure that the contract expiry date does not get overlooked.
Bottom Line
Hope this article helped you understand why energy contract auto-renewal is a silent budget killer for your business. Understanding the risks of an energy plan’s auto-renewal is essential for businesses since it helps them reduce unnecessary expenses. On the other hand, it is also crucial to build strategies to overcome the auto-renewal pitfalls.
For an expert’s consultation in this regard, you can get in touch with Connect Business Energy. We offer professional guidance to small and large enterprises that want to embrace a sustainable energy source and reduce their monthly expenses to prevent budget hassles due to the fluctuating energy prices.