Flexible Energy Contracts for Businesses
Understand how flexible energy contracts work and let our energy experts build a purchasing strategy matched to the way your business uses electricity and gas.
What is a flexible energy contract?
A flexible energy contract is a business energy agreement that allows a company to purchase its gas or electricity in gradual portions throughout the contract term, instead of locking in a single unit rate upfront.
Businesses buy these portions over time with the aim of taking advantage of favourable market prices as they arise.
The price paid ends up being the blended average of the various wholesale rates secured across the different purchasing points, plus other non-commodity costs.
Flexible energy contracts are available to medium and large businesses with high energy consumption. Suppliers typically require annual consumption of at least 1GWh of electricity or gas.
This differs from a fixed energy contract, the simpler format typically arranged for small businesses, where the unit rate is agreed once and stays the same for the entire duration, with other costs included in it.
What is flexible energy procurement and how is the strategy managed?
Flexible procurement is the execution side of a flexible contract, the work of actually buying your energy in stages once the contract is live.
There are three stages to it:
1. Volume forecasting
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Your usage is not fixed in advance, so we start by building an accurate picture of what your business will consume, using your consumption profile and your half hourly meter data. That forecast sets how much energy is bought across the term, and we refine it as actual meter readings.
2. Strategy agreement
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Nothing is bought until the parameters are agreed. Your strategy comes out of a risk management workshop, where we identify your goals, set your risk profile and agree on the triggers and timing, so every trade across the term has a rule behind it.
3. Market purchasing
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Your volume is then bought in tranches across the wholesale market, covering forward periods from the next day out to future seasons. Our trading team uses fundamental and technical analysis to time those purchases, and every tranche adds to the blended average rate behind your final business electricity prices. A tranche already fixed can also be sold back and repurchased at a later date, known as refloating. We use this selectively, where it suits your position, rather than as a core part of the strategy.
Our flexible energy procurement service
A flexible contract is only as good as the people running it. The strategy has to be set properly at the start, then watched and acted on for the life of the contract.
That is what our expert team does for you:
- A risk framework first. Flexible purchasing only performs alongside a proper energy risk management. We build yours before anything is bought, so every decision across the term has a rule behind it.
- A strategy built around you. We set the parameters from your consumption profile, your contract dates and your appetite for risk, rather than applying a standard template.
- The right supplier. Your requirements go to our panel of over 20 suppliers, and we evaluate each on commercial terms and service levels as well as price, then give you a full evaluation with our recommendation.
- Support at the level you want it. Tiered from advisory, where we bring you the trading decisions and you approve them, through to fully managed, where our trading team acts within your agreed parameters.
- Full visibility of your position. Online position reporting, budget tracking, trade history and consumption analytics, plus invoice validation and account management across the term.
Why choose a flexible energy contract?
Flexible contracts suit businesses that would rather manage their energy cost actively than hand the whole decision to a single day in the market, as a fixed energy contract does. Done properly, it gives you the balance of risk, budget certainty and price opportunity:
Spread the risk
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Buying in tranches across the term means no single purchase sets your cost for the year, which softens the impact of buying into a market peak.
Control the timing
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You set the parameters and the triggers, so purchases are made when the market moves in your favour rather than on the day your contract happens to start.
Long-term cost control
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Your position is known at every stage, so finance can forecast energy cost across the term instead of waiting to see what renewal brings.
Room to change
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Volumes can be adjusted and reforecasted as the business changes, whether that is new sites, a shift pattern change or a change in output.
See what you pay for
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The wholesale element, standing charges and non-commodity costs are all visible separately, so you know exactly what is driving your cost.
Every site, one strategy
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Consumption across your whole portfolio can be forecast and bought as a single volume, which can open up better terms than contracting each site on its own.
Types of flexible energy contracts
Flexible is an umbrella term rather than a single product. Contracts differ in how much support you want, how the trading is structured and how the non-commodity costs are treated.
How much support you want
Support is tiered, and where you sit on it changes how much of your time the contract takes.
- Advisory. We monitor the market and the forward curve, and bring you each decision when it needs making. Final approval stays with you.
- Partially managed. We act within agreed parameters for routine purchases and come to you for the bigger calls.
- Fully managed. Our trading team executes against your strategy throughout, and you receive reporting on every trade.
How the purchasing is structured
Every flexible contract gives you access to the wholesale market, but each structure sets different rules on how and when you can buy.
- Tranche-based. You buy in fixed block sizes, usually 5% or 10% of forecast volume, and must be fully hedged by a set deadline. The most common structure and the most accessible.
- Structured. A minimum hedge level is set for each delivery month, for example, 60% hedged six months out. More freedom, aimed at larger volumes.
- Index-linked. A share of your volume stays unhedged and prices against published market rates. The most exposure, and the most upside if the market falls.
How non-commodity costs are treated
The network charges and levies sitting alongside your wholesale rate can be handled three ways, and it changes how predictable your bill is.
- Fixed for 12 months. Good for budget certainty over the year ahead.
- Fixed for the contract duration. The most certainty, with these costs locked for the full term.
- Fully passed through. The costs are passed on as incurred, giving full transparency and avoiding the risk premium built into a fixed option. Better suited to larger businesses.
Who are flexible energy contracts suitable for?
Flexible energy contracts are suitable for large or high-consumption businesses, as the risks involved require a level of consumption, resources, and risk tolerance that smaller businesses typically don’t have.
These are:
- Price risk: The business carries the market risk itself, since rates aren’t fixed in advance, meaning a rising market can result in a higher blended rate than a fixed contract would have offered.
- Active management: The strategy requires ongoing monitoring and timely purchasing decisions throughout the contract term, usually needing a consultant or dedicated in-house resource.
- Volume risk: Purchases are made against a forecast, so if the business consumes more or less than expected, it is exposed to the market on the difference. Businesses with predictable, stable consumption patterns carry less of this risk.
Are flexible contracts suitable for small businesses?
Rarely. Suppliers set a minimum 1 GWh annual consumption threshold for flexible contracts, because the trading and administration involved isn’t commercially viable on a small supply. Below that, a fixed contract is usually the only option offered.
How are flexible energy prices calculated?
The final price paid under a flexible energy contract is made up of several components:
Wholesale rate
The wholesale rate is the only component set by the market, measured in pence per kilowatt-hour (p/kWh).
This will be the blended average of the rates secured across the various tranches bought throughout the contract, reflecting the outcome of the procurement strategy used.
Non-commodity costs
Non-commodity costs are set by government and industry bodies rather than the supplier. They include:
- DUoS charges: Covers the cost of using the local distribution network to carry electricity to the business’s premises.
- TNUoS charges: Covers the cost of maintaining and operating the national transmission network.
- BSUoS charges: Covers the cost of balancing electricity supply and demand across the system in real time.
- RAB nuclear charge: A levy funding the construction of the Sizewell C nuclear power station.
- Environmental and government levies: Fund current and past renewable energy schemes.
Standing charges
Standing charges are a fixed daily fee, charged in pence per day, agreed with the business energy supplier at the start of the contract regardless of consumption.
These cover the suppliers’ costs, such as servicing the account, metering and billing. Because this charge is set by the supplier, it varies from one supplier to another.
Taxes
Flexible energy contracts are also subject to two government taxes:
- Climate Change Levy (CCL): A government levy charged in p/kWh on business energy use, added to the bill regardless of supplier or contract type. Businesses may qualify for reduced rates by applying for a Climate Change Agreement.
- VAT: Charged at 20% for most businesses.
Green flexible energy contracts
A green flexible energy contract is a flexible contract that guarantees the electricity purchased is matched by renewable generation.
The procurement process itself works the same way, tranches are still bought in stages against the wholesale market, which treats every kWh as identical regardless of source, but the kWh purchased is backed by renewable certificates rather than tied to any specific generation mix.
These certificates are officially known as Renewable Energy Guarantees of Origin (REGOs), and they prove a given volume of electricity was generated from a renewable source. Suppliers use these to back the volumes purchased under a green flexible contract, and they are the same mechanism behind a 100% renewable energy supply.
Alternatively, a power purchase agreement can be layered into a flexible contract alongside your wholesale purchases, forming part of your overall hedged position.
What information is needed for a flexible energy contract?
Setting up a flexible energy contract requires the same baseline information as any business energy contract, along with some additional detail specific to how a flexible strategy will be managed. Here is what is needed:
- Meter details: MPAN (for electricity) or MPRN (for gas), which identifies the specific supply point(s) being contracted.
- Historical consumption data: At least twelve months of usage data, used to forecast volume requirements.
- Business details: Company name, registered address and the site address(es) the contract covers, along with the desired contract start date and duration.
- Risk tolerance and strategy preferences: The level of risk you are willing to carry, along with any timing preferences or triggers.
- Letter of authority: If a consultant is acting on your behalf, a letter of authority is usually required, permitting them to manage the contract with suppliers.
How flexible energy procurement works with Consultiv
Moving to a flexible contract is straightforward for you. We handle the market work, you make the decisions that matter.
Here’s how our expert team can support your flexible energy procurement:
1. We review your position
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We look at your consumption, your current contract and your exposure to work out whether flexible fits and what volume there is to work with.
2. We build your risk framework
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Your purchasing strategy starts with a risk management workshop. We identify your goals, set your risk profile and agree the parameters everything is bought within, so the strategy is tied to your business rather than a standard template.
3. We find the right supplier
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Your requirements go to our panel of suppliers, evaluated on commercial terms and service levels as well as price. You can compare business electricity terms across the panel before anything is agreed.
4. You choose your level of support
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Advisory through to fully managed, depending on how involved you want to be in each trading decision.
5. We trade against your strategy
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Our trading team times your purchases using fundamental and technical analysis, keeping you updated on market movement and recommendations.
6. You see everything
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Position reporting, budget tracking and trade history are all available online, so you always know where your hedged position sits.
FAQs - Flexible energy contracts
Can flexible energy procurement save money?
It can, though savings aren’t guaranteed. Since purchases are spread across multiple points in the market, a business benefits when prices fall after the contract starts, since later tranches are bought more cheaply.
However, if prices rise, later tranches cost more, so the outcome depends on how the market moves and how well the purchasing strategy is timed against it.
However, by purchasing small amounts across time, both the risk of buying the top and the reward of buying the bottom are dampened.
Can part of an energy requirement be fixed while the rest remains flexible?
Yes, some suppliers offer a partially fixed structure, sometimes called a capped or hybrid contract, where a portion of the expected usage is bought at a fixed rate upfront and the remainder is left open to be purchased flexibly.
This reduces exposure to market movement while still allowing some benefit from favourable pricing on the flexible portion. Availability of this structure varies by supplier.
Can a business move from a fixed contract to a flexible contract mid-term?
Generally, no, not without paying a termination fee. Fixed contracts are agreed for a set term at a set rate, and ending one early usually triggers an early termination fee, since the supplier has already purchased the energy for the remaining term at the fixed rate.
Most businesses wait until the fixed contract’s end date, or the renewal window shortly before it, to switch to a flexible arrangement.
What happens if a business uses more energy than it forecasts under a flexible contract?
Any usage above the forecast volume is typically bought at the prevailing market price at the time it’s needed, rather than at the blended rate secured for the forecast tranches.
This exposes the business to whatever the market rate happens to be at that point, which is why accurate forecasting and regular reconciliation against actual usage matter throughout the contract.
Can several business sites be combined within one flexible purchasing strategy?
Yes, multiple sites can usually be grouped together under a single flexible contract and purchasing strategy, provided they’re with the same supplier.
This allows the combined usage across all sites to be forecast and purchased as one volume, which can also give access to better terms than negotiating each site separately.
How often can energy be purchased under a flexible contract?
This depends on the products used and the strategy agreed with the supplier, but purchases are typically made across day-ahead, month-ahead, quarter-ahead and season-ahead periods, rather than at a single fixed frequency.
Some strategies also use trigger-based buying, where a purchase is made whenever the price reaches an agreed level, meaning the actual frequency can vary depending on how the market moves.
Get your flexible energy quote
Tell us about your supply and our experts will build a strategy around how you use energy.