Several options are available when signing an energy contract, including variable, fixed and dynamic energy contracts. Choosing the type of energy contract affects the final energy costs. But which contract best suits your organisation?
Fixed contract
A fixed contract offers security with a fixed price and term for your energy. By fixing the gas or electricity tariff for a certain period, your delivery tariff will remain unchanged during that period. This is advantageous for those who want stable monthly energy costs.
Variable contract
With a variable energy contract, you pay a fixed rate per month; the amount of this can vary from month to month. The tariff can be adjusted monthly by the energy supplier, based on what the energy market is doing.
Dynamic contract
Dynamic energy contracts adjust based on market conditions. Rates vary over the term of the contract, depending on factors such as supply and demand, weather conditions and geopolitical events. You pay the current electricity and gas price, which can change by the hour (electricity) or day (gas). Rates will be announced one day in advance.
Factors influencing choice
Risk
An important factor in choosing between a variable, fixed or dynamic contract is the organization’s risk tolerance. Variable and also dynamic contracts carry (a lot) more risk as prices fluctuate. This can lead to unexpected costs. In addition, you can’t budget much, if at all, with a variable or dynamic contract.
Market analysis and forecasting capability
Its ability to closely monitor the energy market and make accurate forecasts plays a major role in choosing between fixed, variable and dynamic contracts.
Budget
Budget and the ability to absorb unexpected costs are important factors to consider when choosing an energy contract. Variable contracts can lead to cost savings, but may require a more flexible approach to budgeting and financial planning to deal with price fluctuations.
Conclusion
In recent years, energy rates have gone in all directions. Whereas in 2022 the differences between fixed, variable and dynamic were large, the differences are currently less significant.
The choice between these contracts depends on your risk appetite and budget, as well as expectations regarding energy prices and market trends. Dynamic and variable contracts carry more risk than a fixed contract. In addition, fixed contract rates are currently so favorable that business owners who do not want to risk (unexpected) price increases can certainly consider a fixed contract.
Choosing an energy contract remains a difficult choice, and the right one depends on many factors. Energy Excellent is happy to help you make the right choice! If you want to know more, feel free to contact us. We are always ready to advise you.
