Your energy purchasing options and specific needs will vary according to your size, location, energy usage, and your overall appetite for risk. At Unified Energy Alliance, we understand that every client is unique and every situation requires a customized approach. Allow one of our trusted consulting partners to analyze your current situation and your future plans. We will educate you on your options, so you can determine what works best for you and not make a decision based on limited offerings alone.
Factors in How to Buy Electricity
The five most common types of electricity pricing products are listed below. These five factors can be useful in understanding how to buy electricity. The first four products also apply to natural gas (with the exception of the "blend and extend" option):
If you require absolute budget certainty and cannot bear the exposure to price fluctuations associated with volatile market movement, a fixed-price pricing strategy is a good choice. In this strategy, you will use power at a certain price rate for a predetermined, negotiated term. This product is most suitable for the vast majority of commercial and industrial companies, especially in today’s market. A "Blend and Extend" option may be provided by the supplier to allow you to renegotiate your price and extend your term if the market goes down.
If you are willing to shoulder some risk, but have some concerns about letting 100% of your energy pricing ride on the index, a "block-and-index" combination is a good choice. This option works best for those who have foreseeable escalating usage that can be layered in as the business expands. You can lock-in a fixed price up-front for a portion of your load and pay the index price for the remaining volumes. This strategy also makes sense if you want to lock in portions of your contract price at various times, since you can buy multiple blocks of power over time.
This product allows you to purchase based on the average of spot market settlements over the delivery period. It’s most suitable for larger industrial companies that can shed load, manage power consumption, pass on the cost of electricity to their customers, or use a majority of their energy during off-peak hours.
This product allows you to play the market with the option of locking in a price at a later date. It’s most suitable for those companies who are willing to bear the risk of paying an index price, but also want to take advantage of any market dips to lock-in a fixed contract price. Companies considering this option should be able to handle a moderate degree of risk.
You may wish to choose a heat rate product if you want to pay market-based prices but power indexes in the market are not available, or they are not as transparent as gas prices. Heat rate products are most popular when gas prices are expected to decline. This product is most suitable for those who have a strong commodities hedging function and are looking for ways to tie their expenses to expected revenue streams.
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