Take or pay clauses outline the obligation on the customer to pay for a specified amount of energy whether it is taken or not. Usually, these clauses are termed tolerances because they detail penalties for over consumption as well as under consumption. So one party must either take a delivery of goods (in this case energy) or pay a specified amount as a penalty.
Take or pay clauses are standard practice in the energy industry especially for larger consumers which are consuming significantly more or less than the contracted amount. This puts the supplier at risk of having to sell energy back to the grid or pay the prevailing price at balance settlement. Most commonly, take or pay obligations are determined on an annual or contract year basis, although the principles of take or pay can apply over different time periods, with quarterly and monthly take or pay obligations being invoked by some suppliers.
When we are advising a client concerning their procurement we are always anxious to ensure that the estimated forward consumption is as accurate as possible. If you think that your consumption of energy will change significantly over the contract period, then it is important to discuss this with your account manager at the pricing point. For all but the very largest consumers, we can normally identify a supplier who will remove the take or pay clauses from the contract, which may be a sensible option where consumption is unpredictable even if the kWh rate is slightly elevated.
There are several situations in which take or pay clauses regularly become an issue. Taking on new premises where the function of the premises is changing or where the premises have been empty for a long time. In these cases, for large electricity consumers, there will be no meaningful consumption data on which suppliers can contract, so this needs to be rectified by putting together data that is representative of the profile and level of consumption. In the case of gas, most suppliers contract to what is termed the ‘national grid AQ’, which means that they use the consumption information held on the central database as the contracted sum. This can be wildly different. The most important thing is planning for changes in your consumption.
The second reason that consumption reduction could have occurred more recently is the installation of microgeneration facilities on site. If you are planning to install solar or wind generation on site, or if you are looking to replace your boiler with a biomass boiler, then you will need to talk with your account manager to double check the terms of the contract and ensure that the reduced consumption will not affect your supply contract.
Whilst we can usually find a supply contract that meets everyone’s needs at a competitive price there are times when there isn’t another option available other than a take or pay clause. When this happens we always try to negotiate the clauses in the contract to minimise the risk of penalties whilst also getting the best deal possible.
If you are uncertain about your current contract we are happy to review it for you. Please don’t hesitate to contact us.