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Fixed or flex: which energy contract is best when prices are volatile?

11 July 2022

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Is my business eligible for a flexible energy contract?

Buying energy can sometimes feel a little like sailing stormy seas; price volatility has unfortunately become the norm in recent times. So should you play it safe with a fixed price contract - or are flexible tariffs the solution to making an unpredictable market work for you?

Most types of flexible contracts are out of reach for medium sized businesses. Trident’s Frameworks solution changes this.

Frameworks uses an innovative contract structure to help medium sized businesses unlock the purchasing power of a large corporation. By grouping customers with the same level of energy demand and risk approach into a single purchasing framework, we’re able to negotiate contract terms with suppliers for them as if they were one single larger consumer. This provides benefits including:

  • unrivalled access to the energy marketplace
  • purchasing power equal to large corporations
  • more favourable contract terms
  • fully managed energy accounts

 

So, now that the options available to your business are broader, here’s how fixed and flexible tariffs measure up: 

 

Fixed Contracts

Pros

  •  A fixed rate for the full duration of the agreement which makes budgeting easier.

 Cons

  • Suppliers are faced with many risks when offering fixed price contracts e.g. wholesale energy market movement, changing policy and other non-energy charges and credit risk. They may therefore add a risk premium to fixed contracts, and the longer the contract the greater the premium.
  • If the rate is fixed when wholesale energy prices are high, you may find yourself stuck with less competitive rates until the contract expires, with no opportunity to benefit when wholesale prices fall.

 Flexible Contracts

Pros

  • Take advantage of lower wholesale energy prices when they occur.
  • Spread the risk of your energy requirements by hedging small “chunks” of your requirements over the duration of your contract.
  • Purchase energy in a non-linear way to take advantage of backwardated markets - without committing 100% of your volume.
  • Create a purchasing strategy for the long term to support your business objectives and avoid unexpected price spikes.
  • Decide whether to fix or pass through your non-commodity costs, deciding on your risk appetite and budget constraints.

Cons

  • Wholesale energy markets move up as well as down, so insight and management are crucial.
  • Access is typically for larger demand users - unless you can access a solution like Frameworks from Trident.

Best for volatility?

Energy price volatility can be caused by a number of different things including global events, policy decisions and the weather - and the volatility we are seeing now is expected to last for some time longer.  But the good news is that volatility means prices can go down as well as up — and the next price drop may be round the corner. A flexible tariff will let you make the most of any wholesale energy price drops that occur.

We’ve got you

What works best for your business in a volatile market will depend on a number of factors: the size of your business, the amount of energy you use, your ability to react quickly to changing conditions, and how much uncertainty you can cope with. If you’re unsure which option will deliver the most benefit to your business, working with an expert partner can remove the stress and uncertainty, equip you with all the information you need, and give you the confidence to make the right choice.

Trident can help make flexible tariffs work for you. Find out how. 

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Download Your essential guide to buying energy when prices are volatile: How medium-sized businesses can reduce costs and risk

Talk to us

We know it’s a difficult time for medium sized businesses. When you become a Trident customer, you can rest assured that you’ll always get clear and honest advice from our energy experts. From budget-conscious energy buying through to efficiency and carbon reduction, we’ve got you.

Talk to us

See how much we could save you

Please call our team on 0345 634 9500 or email us at info@tridentutilities.co.uk.