Fixed Price and Index Price
Two common solutions for managing overall electricity cost include Fixed Price and Index Price.
Your business' budget priorities and ability to manage the quantity of electricity used can help determine the right energy supply program.
Fixed price solutions give businesses the ability to secure a set price-per-kWh during a designated contract term. Fixed price is a common buying option for businesses seeking budget certainty. The certainty comes with a cost, called a variable load cost, which reflects the variable risk the energy provider must take on by offering a fixed price over a period of time.
Fixed price solutions are easy and protect businesses from market volatility, but they do not offer the flexibility to benefit from reduced costs in declining markets. There is also a timing risk: you may lock into a price that seems low for the moment, but that price can seem high just days or weeks later if the electricity market drops even further.
With the index price option, businesses pay the varying market price of electricity for each given hour. This hourly fluctuation provides businesses with the flexibility to adjust their usage to take advantage of market dips.
Since the customer is basically absorbing all the risk that the price will fluctuate, there is no variable load cost associated with this option. This hourly fluctuation can make it difficult for some businesses to accurately manage their cost as it relates to the quantity that needs to be consumed for that particular hour.
However, businesses can take advantage of price volatility to competitively plan and manage the quantity of electricity they consume based on anticipated hourly prices. Manufacturers, for example, can opt to use more electricity at off-peak hours (overnight).
How could a Fixed Price or Index Price solution strengthen your energy strategy? Have one of our Business Development Managers contact you.