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Fixed vs Flexible Energy Purchasing

January 25, 2024

Energy is always going to be one of your largest business expenses, and the costs only increase as your operations expand.

Finding the right energy procurement strategy is essential to managing your usage, cutting unnecessary costs, and meeting your Net Zero ambitions.

Traditionally, the only option has been fixed-term energy purchasing. However, as the market continues to be volatile, flexible energy purchasing has become a more popular option, particularly for large businesses.

If you aren’t sure about fixed vs flexible energy purchasing, or which one is the best option for your business, this guide will break down all of the information you need to know.

What’s the difference between Fixed energy purchasing and Flexible energy purchasing?

Fixed energy purchasing involves a contract that locks in the units of energy you need at a fixed price for a period of up to three years.

Your energy costs are agreed upon at the beginning of the contract based on the current market rate, so you are protected against any spikes or increases in price. However, should the price go down, you will be unable to take advantage of it.

Flexible energy purchasing on the other hand involves purchasing energy from multiple suppliers and sources in the wholesale market. This enables you to take advantage of fluctuations in the market and gives you more control over how and when you purchase energy.

Which type of energy purchasing has more risk?

Fixed energy purchasing is a low-risk option as the supplier takes any risk around supply or cost per unit on your behalf. This is why this kind of tariff can include pricey premiums.

computer with stock market prices for flexible energy purchasing

There is a different kind of risk that comes with a fixed-term contract, and that is what happens when your contract ends. If your price is going to substantially increase, it is easy to panic around renewal time and get locked into a deal without doing thorough research or weighing up your options.

Flexible Energy purchasing comes with more upfront risk. As your supply and unit price are more volatile, risks in the market need to be constantly monitored.

You do however have more power in decision-making. Your flexible energy tariff can be built around your business’ tolerance for risk, to buy energy at the right time to secure you the best deal.

Which type of energy purchasing will help you achieve Net Zero?

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With Fixed energy purchasing, all of your units are secured within a one-day window. As a result, you can secure renewable energy sources that exist at the time, but you won’t be able to capitalise on any new initiatives that are created for the duration of your contract.

On the other hand, Flexible energy purchasing can be custom-built around your business’ Net Zero goals and adapted as new opportunities in the market arise. You can optionally ensure that all of your energy is 100% certified renewable.

Which type of tariff offers more control over your energy bills?

Electricity pylons with sunrise in the background

Fixed energy purchasing is ideal for businesses that want complete clarity over their energy costs for the duration of their contract. By locking in your costs in advance, you have short-term budget certainty and can accurately forecast future energy budgets too.

While this means you won’t be hit with any unexpected increases, it also means you can’t deal with any drops in the market. If your contract began when prices were spiking, you have no option but to continue paying that price.

The only price that can increase in a Fixed-Term contract is your third-party charges if the market is particularly volatile. Expensive premiums are automatically built into fixed-term contracts, further pushing the price up.

On the other hand, you might assume that Flexible energy purchasing is more badly impacted by changes in the market. But that isn’t necessarily the case.

With Flexible energy purchasing, your energy will be bought at strategic times and in multiple purchases from a variety of suppliers. You can take advantage of dips in the market with this kind of tariff, and in many ways, it gives you more control and protects your budget from potential increases.

Plus, as you are taking responsibility for the risk involved in this style of purchasing, you won’t face the same expensive premiums or third-party charges as Fixed energy purchasing.

Which type of tariff offers more control over your energy usage?

With Fixed-Term Purchasing, you are bound by the volumes you set and purchased at the beginning of your contract. You can’t increase or decrease the number of units you use, so you need to be sure about what your business will need for the duration of your contract.

With Flexible-Term Purchasing, as you don’t buy your full volume of units at once, you can fluctuate the amount of energy you buy based on the amount your business needs.

If you partner with us for your Flexible energy purchasing, you will receive monthly energy performance reporting so you can keep a close eye on your usage and respond accordingly. And if you have any unused energy at the end of your contract, you can sell it back.

Who is each type of Energy tariff best suited to?

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With all of this in mind, it is clear that each style of energy tariff will suit different types of businesses.

Fixed energy purchasing tends to be the best fit for smaller businesses that have clarity on their usage and want to choose an option that comes with limited risk.

You should however keep in mind that you may end up paying more money for a fixed-rate term. Last year, The Guardian reported that over one million small businesses in the UK were trapped in high-cost energy tariffs.

Flexible energy purchasing, on the other hand, is a much better fit for larger commercial businesses. If you have fluctuations in your usage, perhaps across different units, and require a customised approach, then a flexible tariff is your best bet.

We hope that this blog has helped you to understand fixed vs. flexible energy purchasing and has helped you determine which is the best option for your business.

No matter what, you need to ensure you choose an energy partner who understands the market and your business, to help you make the most practical decision for your business.

Here at Utili-Tay, we have recently launched a Flexible energy purchasing service, to help large commercial businesses to build a tariff that suits their bespoke needs. Get in touch to arrange your no-obligation consultation today.

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