Fixed or Flexible Contract?

Informed decision making is critical in the process of choosing and negotiating energy contract for your business as its one of the most important determinants of success. For your company or organization to tackle the challenges ahead of it, remaining at its current position is not an option. 

It is important for business owners to understand the different options available in the market when it comes to selecting the type of contract that suits your needs. The decisions you make can greatly impact the value of the contract in the long run.  There are contracts that allow organizations to respond to the changing conditions in the market and seize the advantage presented by price fluctuations to facilitate growth.

However, making the right choice will greatly depend on your comprehension of the difference that exists between flexible and fixed energy procurement – then knowing the plan that will benefit your business best. UGOCHRIST ENERGY takes you through these two types of energy contracts.

Fixed procurement

This gives you the power to decide the price of your natural gas and electricity. The price agreed upon will then remain constant throughout the entire duration of the contract. Historically, many consumers have always opted for the fixed energy contracts due to a number of advantages such as fixed contract period, fixed prices and therefore budgetary certainty.

But that does not necessarily mean that they are the best choice to go for. Some of the limitations with regard to fixed contracts include:

  • Timing – if you choose to enter into another fixed contract during a period when the wholesale prices of energy are at the peak, you shall have committed your business to uncompetitive rates for the entire period of the contract.
  • Risk premiums – any risks related to the supply contract in relation to volume variations, non-energy charges and credit risks are accounted for by the suppliers. For them to cover those risks, premiums are added to the consumer prices, which eventually lengthen the contract period. Fixed contract terms that are longer are therefore associated with higher risk premiums as a result of the variations in the predicted costs of energy.
  • Are all elements fixed? – You should not assume that every cost aspect of the contract are fixed. The standard terms of most suppliers indicate in their Terms & Conditions that the costs can undergo some increment through non-energy charges like transportation costs. When signing a contract you should have such costs clarified to ensure that you include them in your budget.

Therefore, what is the best alternative to turn to when a business is after getting more perks from energy contracts?

Flexible procurement

This form of procurement enables you to purchase your energy in small chunks on wholesale prices for the rest of the remaining period of your contract. This gives you the power to choose when you make the purchase and how much you spend on your energy. Competitors who choose to set their prices at appropriate times will gain a competitive advantage through their procurement contracts.

This makes this option much more suitable for those consumers with a large energy requirement. It brings about the advantage of spreading the risks of procurement over a certain time period.

Which one should you go for?

The choice you go for will greatly depend on your consumption needs. When making a decision, you also need to get your timing right. There are always market fluctuations and therefore, consumers should choose the fixed energy contracts when the wholesale pricing of natural gas and electricity are relatively low.

But how confident are you that you will be able to pick the best time every year? If you need to spread the risks of inappropriate timing of the fixed price decisions, you should consider the flexible contract.

Non-energy costs

Fixed contracts seem like the best option, but it can include more than non-energy costs than you can realize. You therefore have to explore all options so as to stay away from the unexpected costs.

Environmental energy policy is very unpredictable and any third party costs can be passed on to consumers. Equally, transmission charges may also hike. Therefore, when choosing a fixed contract, make sure that it does allow for unexpected surges in the third party charges and that you are offered protection against them.

Why work with UGOCHRIST ENERGY

By working with us, you are able to negotiate the contracts with a better insight of the markets and managing the associated risks instead of paying inflated premium coverage.

We will also offer guidance through the T&C of the supplier and choose contracts that best match your budget. It is what we do best – helping consumers secure contracts with terms that are suitable to their consumptions and budgets.

If ready to choose a contract, let our energy consultants guide you through each contract type in details so you can make more informed choices that will positively impact your business’ growth. Talk to us today and finally let us seal that energy contract for you.

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