Fixed vs. Variable Rates

Traditional Energy Procurement Options

Fixed Price Energy Contracts

A fixed price typically refers to a “fixed all-in” agreement but a fixed procurement strategy can include or pass through any or all of these components –capacity, transmission, ancillaries and losses. These elements may also be “hedged” for a premium. The benefits of a Fixed Price includes price certainty and simplicity but procuring a fixed price is gambling on whether today is the best day to contract (less than 5% chance). Fixed Prices also include little to no flexibility and you will pay premiums for load shaping, load following and forward risk assumed by the supplier.

Also, you must realize a “Fixed All-In” price does not always mean that ALL components are fixed! If a Fixed All-In strategy is the best strategy for your company, Aspen will ensure the supplier of choice has clearly listed on your contract what exactly is included in the fixed rate, and what is “floating”. For example, capacity may be included but subject to change when new PLC tags are released. Without this consultation from Aspen, it is difficult to determine a true apples to apples comparison between quotes.

Fixed Pricing Options:

  • Fixed w/ Pass Throughs
  • Fixed w/ Swing Variations (10%, 25%, 50%, 100%)

Variable (Index) Price Energy Contracts

A Variable Price typically refers to a 100% indexed agreement but as with Fixed Pricing, components of capacity, transmission, ancillaries and losses are included in a fixed adder to lock in these costs while the price of energy floats on the market. The benefits of using a variable price agreement includes little to no premiums for load shaping, load following or forward risk and you will benefit from a lower energy cost. The Variable Rate client bears the full risk of market volatility. For this reason, determining the best strategy for your company when deciding on an indexed agreement is extremely important. Aspen Energy will help you decide on whether to secure an agreement tied to the Day Ahead or Real Time Index LMP and which adders should be included or passed through based on your ability to manage and shift load.

Index Pricing Options

  • Full Index
  • Index w/ Adders
  • NYMEX +

*Aspen Energy also offer Blended Energy Procurement Options. Click here to learn more about Block & Index Pricing.

To learn more about these energy procurement strategies or our Professionally Managed Energy Programs, contact us today at (800) 926-0046.

For a more in depth discussion about these strategies or to learn about our Professionally Managed Energy Programs, contact us today at (800) 926-0046.

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