To fix, or not to fix, that is the question.
One of the most important decisions when securing a business energy deal is choosing whether to go with a fixed-rate or flexible contract.
More than one in 10 small businesses fixed their energy contracts during the market peak in 2022 following Russia's invasion of Ukraine, according to research from the Federation of Small Businesses (FSB).
The organisation warned that hundreds of thousands of small firms were stuck paying high rates long after the spike eased.
However, businesses on flexible contracts were exposed to volatile business energy prices and soaring uncertainty.
Sounds daunting, right? It can feel that way.
We are here to walk you through the basics of fixed and flexible contracts to help you make a smart decision for your business.
In this article:
Learn the difference between fixed-rate and flexible business energy contracts.
Understand the pros and cons of each type of contract.
Assess which approach best suits you and your business.
Understanding what fixed-rate and flexible contracts are will help you make an informed decision for your business. For more information, read on or check out our simple guide to business energy.
A fixed-rate energy contract means you agree to pay a set price per unit of energy for the duration of the agreement, often one, two or three years. That rate doesn’t change, even if wholesale prices go up.
For many businesses, this brings a huge sense of relief.
You can plan. You can budget. You know what’s coming. And there’s no need to second-guess what a cold winter or a supplier issue might do to your bill.
Your bill could still go up or down each month, but this depends on your usage. It is within your control. Businesses with stable energy usage are able to forecast their costs more accurately with a fixed unit rate.
Who is a fixed-rate contract for? Fixed-rate contracts are especially popular with small and mid-sized businesses. They keep things straightforward. And if you’re already juggling a million other things, the simplicity matters.
Things to consider before choosing a fixed-rate contract:
Fixed contracts offer predictability but you won't benefit if market prices drop.
A flexible energy contract works differently. Instead of locking in your rate up front, you buy energy in blocks, spreading purchases across your contract period.
The goal? To manage risk actively.
If prices fall, you can buy at a lower rate. If prices rise, you don’t necessarily commit at the worst time.
Over time, you aim to smooth out the highs and lows and could make savings versus a fixed-rate contract if the market heads in the right direction.
Who is a flexible contract for? Flexible contracts are typically popular with larger businesses using energy-intensive industrial facilities with multiple sites and/or seasonal usage peaks and troughs. These businesses tend to employ specialist procurement managers in an effort to purchase energy at an optimal time.
For example, a manufacturer operating across multiple sites may choose a flexible contract to spread purchases across the year instead of locking into one market price all at once.
Things to consider before choosing a flexible contract:
Flexibility isn’t a shortcut to lower bills. It needs attention.
Someone, whether in-house or through a partner, has to track the market, interpret data, and make timely purchasing decisions.
It also requires trust. You’re putting your energy costs in the hands of whoever’s managing that process.
Done well, it can give you control and a better overall outcome. Done poorly, it can quickly turn into a guessing game.
Flexible contracts benefit from market price drops but you are also exposed to rises.
Here's a simple comparison of what fixed and flexible business energy contracts could mean for you:
This article is part of our Business Energy Basics series. Now read...
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