Fixed vs Flex: Which energy procurement strategy is right for you? 

The process of energy procurement involves offering the supply of electricity and/or gas to a range of suppliers to promote a competitive environment with plenty of choice. Supplier offers will vary in contract terms and auxiliary costs, so you can choose the setup that works best for you. In this blog, we will explain how fixed rates are locked in and how your level of risk will influence what strategy is right for you.

What is the tendering process?

The contracting process for energy is known as a “tender” and can come in the form of fixed or flexible energy. Fixed supply contracts lock in rates that are reflective of the market on the date of the tender and remain fixed for the chosen duration of the contract. The offered unit rate and standing charge will vary depending on market price and risk.

Flexible supply contracts do outline key contract terms at the tendering stage; however, the final rates will depend on the price that is achieved by our trading and risk team by progressively hedging your consumption requirement through the duration of the contract.

Fixed vs Flex: Is there a right answer?

There is no right or wrong answer when it comes to choosing between fixed and flexible. Fixed options may be more appealing if you have a strong requirement for budget certainty, or if you are very risk-averse and happy to stick with the current market rates. It is worth noting that there are plenty of options for risk-averse strategies on a flexible contract and we always discuss risk appetite as part of the onboarding process with our Trading and Risk team.

The main drawback of a fixed contract is potentially missing out on saving opportunities – it may transpire that the pricing is locked in at a relatively high point in the market, and waiting another couple of weeks could have resulted in a significantly lower cost. Opting for a flexible contract will mitigate this risk. Other drawbacks include supplier risk premiums (fixing for a longer period leads to higher premiums) and greater restrictions surrounding the amount of energy that is used versus the initial contract.

How flexible trading works with our procurement team

Choosing a flexible contract means that our team are informed of your consumption requirements for each contract year, and they have the flexibility to progressively trade up to your full requirement. The size and timing of these trades can be left completely in their hands, or we can work closely with you in the decision-making process. Our expert traders have a range of predefined strategies on a sliding scale of risk/reward, but ultimately the way that your requirement is hedged is always at your discretion.

The objective of buying your energy in smaller blocks is to spread the risk and capitalise on drops in the market, with the aim of the overall achieved average price being lower than that of a fixed contract secured at the same point in time. It is important to note that this does also carry the risk of markets entering an uptrend after sign-up.

Amber’s holistic approach to trading

At Amber, we offer a holistic approach to energy procurement, to find the solution that works best for you. If your consumption surpasses the threshold for a standalone strategy, our team offer a variety of trading strategies which you can adopt as they are, or tailor to suit your specific needs depending on whether you would like to prioritise budget certainty or achieved price.

In conclusion, the decision between fixed and flexible energy contracts depends on your specific needs and risk appetite. Fixed contracts provide budget certainty and simplicity, while flexible contracts offer the potential for cost savings through strategic market engagement. Our team will support you in selecting and managing the most suitable strategy, ensuring your energy procurement aligns with your objectives.

We provide expert energy consultancy services to help ensure your business has a procurement strategy that meets your risk appetite and aligns to your financial forecasting. If you are interested in our services, please reach out or book in a call to find out more.