Short answer
A fixed contract locks in your energy price for the term. A flexible contract lets you buy energy in stages over time against the wholesale market. Fixed suits most smaller businesses; flexible tends to suit large, steady users with the appetite and support to manage price risk.
Key takeaways
- Fixed contracts lock the price; flexible contracts buy in stages over time.
- Flexible buying suits large, steady users with a clear risk strategy.
- Non-commodity costs can be as important as the energy price.
How a fixed contract works
You agree a price at a point in time, and it applies for the whole term. There are two broad versions:
- Fully fixed: unit rates and standing charges are fixed, including most non-commodity costs.
- Fixed with pass-through: the energy price is fixed, but some network or policy costs are passed through at cost and can change.
How flexible purchasing works
Instead of buying all your energy on one day, you buy it in portions, often called tranches or clicks, over months or even years before delivery. Purchases are usually made for future seasons (in the GB market, summer runs April to September and winter October to March) or months.
A risk strategy sets the rules: how much to buy and when, a budget price to aim for, and triggers to buy more if prices rise past a set level.
Flexible baskets
In a basket, your volume is pooled with other customers and bought by the basket manager to an agreed strategy. It gives access to flexible buying without running it yourself, which suits large users without an in-house energy team.
Non-commodity costs
For many businesses, a large part of the bill isn't the energy itself but other charges. These include network charges for transmission and distribution, balancing costs, and government policy costs that fund low-carbon schemes and system security. Whether these are fixed or passed through is as important as the energy price.
Comparing the approaches
| Fixed | Flexible | |
|---|---|---|
| Budget certainty | High | Lower, depending on strategy |
| Timing risk | All on one buying date | Spread over many dates |
| Benefit if prices fall | None during the term | Possible for volume not yet bought |
| Management needed | Low | Ongoing, by you or a manager |
| Typical users | Most small and medium businesses | High-consumption and multi-site users |
Questions to ask before choosing
- How much budget certainty does the finance team need?
- Who will manage purchasing decisions, and how will they be reported?
- Which costs are fixed and which are passed through?
- What happens if consumption changes a lot?
See corporate and procurement.
What a risk strategy usually includes
- Budget or target price: the level the business is aiming for
- Buying window: how far ahead purchases can be made
- Minimum and maximum volumes to buy by certain dates
- Triggers: rules to buy more if prices rise or fall past set levels
- Reporting: how purchases and the achieved price are shown to finance
Governance matters
With flexible buying, decisions are made over time, sometimes quickly. Agree in advance who can authorise purchases and how decisions are recorded. Finance teams often want regular reports showing volume bought, average price achieved and the forecast cost of the remaining volume.
Common mistakes
- Choosing flexible without the time or support to manage it
- Comparing a flexible forecast with a fixed price without accounting for non-commodity costs
- Leaving too much volume unbought close to delivery
Sources
- Ofgem: Energy advice for businesses (ofgem.gov.uk)
Questions
Is flexible cheaper than fixed?
Not necessarily. It spreads timing risk and can benefit from falling prices, but outcomes depend on the market and the strategy.
What size of business suits flexible buying?
Usually high, steady consumers, often with several sites or significant half-hourly supplies.
What is a tranche?
A portion of your expected energy volume bought at a particular time.
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