Once you know whether you want fixed or variable pricing, the next step is choosing the type of contract. Not all “fixed” deals are the same, and some contracts put more risk on you than others. Here’s a plain-English guide to the most common options.
1. Fixed All-In Contract
- What it is: One simple rate per kWh that covers almost everything.
- Why it works: Easy to understand, steady bills, no surprises.
- Downside: You usually pay a small premium because the supplier builds in extra margin to cover risks.
Best for: Businesses that want “set it and forget it.”
2. Fixed Energy + Pass-Through Charges
- What it is: The energy rate is fixed, but other costs (like transmission or capacity) are passed straight through.
- Why it works: Often cheaper upfront than an all-in contract, and you see exactly what’s driving your costs.
- Downside: If those pass-through charges rise, so does your bill.
Best for: Companies that want to save but can tolerate some ups and downs.
3. Block & Index Contract
- What it is: You lock in a fixed rate for part of your usage (your “block”) and let the rest float with the market.
- Why it works: Protects your base load but gives you flexibility to benefit if market prices drop.
- Downside: More complex to manage, since you’ll see two price streams on your bill.
Best for: Businesses with a predictable baseline of usage.
4. Index with Caps or Collars
- What it is: A variable rate tied to the market, but with a maximum price (cap) or price range (collar).
- Why it works: Protects you from extreme spikes while still letting you ride the market.
- Downside: Caps usually cost extra, and you may give up some savings.
Best for: Buyers who like index deals but want a safety net.
5. Flexible Volume Contracts
- What it is: Contracts that let your usage swing more without big penalties.
- Why it works: Good if your operations are unpredictable or seasonal.
- Downside: Typically comes at a higher rate.
Best for: Businesses with volatile or fast-changing usage.
6. Custom / Structured Deals
- What it is: Tailored contracts for very large users (e.g. wholesale blocks, renewable PPAs, aggregation deals).
- Why it works: Can unlock unique savings or sustainability benefits.
- Downside: High complexity — usually needs an energy consultant.
Best for: Large multi-site or industrial operations.
How to Decide
- Want simple and stable? Fixed All-In.
- Want to save but can handle some risk? Fixed + Pass-Through or Block & Index.
- Want flexibility with a safety net? Index with a cap.
- Unpredictable usage? Flexible volume.
👉 Bottom line: There’s no one-size-fits-all deal. Simpler contracts cost a little more but protect you. More complex contracts may save money, but only if you can manage the risk.
Next: Managing Risk in Energy Purchasing – how to protect your business from price spikes →