In short
Flexible energy contracts, which Ofgem says are sometimes called structured contracts, let large energy users buy gas or electricity in smaller portions over time instead of locking into one fixed price. The commodity price is hedged or floated with the market under agreed trading rules, so costs can rise as well as fall.
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What a flexible energy contract is
Ofgem describes flexible contracts as suitable for large businesses that use a lot of energy. Rather than locking into a fixed price, they allow companies to buy energy in smaller portions when market conditions are better.
Fidelity Energy's terms define a flexible energy product as a supply contract that lets the energy commodity price be hedged and/or floated on the basis of prevailing market prices, before and during the term. In other words, the wholesale part of your price is built up from a series of purchases rather than set in one go.
That makes it different from fixed rate business energy, where the unit rates and standing charges are agreed once for the whole term. Both are among the business energy tariffs available, but flexible contracts are usually only offered to higher-consumption sites.
How buying in portions works
The volume of energy you expect to use over the contract is split into portions, often called tranches, and bought at different times. The prices of those purchases are combined into the rate you pay.
- Agree the strategy: how much to buy ahead, over what period, and the rules for when to buy
- Set triggers: price levels at which more volume is bought automatically, for example to cap exposure if the market rises
- Buy in tranches: portions are bought before and during each contract year, so no single day decides the whole price
- Report the position: you see what has been bought (hedged), at what prices, and what is still open to the market
- Confirm the rate: depending on the product, a rate is set for each delivery period once enough volume is bought
Fidelity Energy offers flexible procurement run by its in-house trading desk. Its approach uses upper triggers to buy cover if the market rises past an agreed level and lower triggers to buy when prices dip, and under its terms it sends a monthly report of the hedged position and market exposure. Fidelity Energy also says a flexible contract can be converted to fixed part-way through: it buys the remaining volume at that day's market rate and fixes the rest of the term.
The trading policy and paperwork
A flexible contract comes with more paperwork than a fixed one, because someone is buying energy on your behalf. Under Fidelity Energy's terms:
- A Flexible Trading Policy is a separate agreement setting out the terms on which energy is bought for you, and it takes priority over the general terms where they differ. It is where the agreed strategy is written down, so read it as your risk policy.
- A Letter of Authority lets Fidelity Energy execute trades with the supplier and receive trade confirmations and position reports. It is renewed at least annually on request.
- Supplier contracts must be signed on time: any delay in signing that affects pricing, including energy price increases, is the customer's risk.
- Exclusivity: a customer who chooses Fidelity Energy's flexible procurement service appoints it as the only provider of those services for the term.
Read these documents alongside the supply contract itself. They decide how your price is built.
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What a flexible contract does not cover
Flexible buying applies to the commodity part of the price: the wholesale gas or electricity. Fidelity Energy's terms say its flexible procurement services apply only to commodity price aspects, not to non-commodity costs such as transmission, distribution, environmental levies and taxes.
Those non-commodity costs still have to be priced. Depending on the product, they may be fixed each year or passed through at cost as they change. Fidelity Energy lists both options for its flexible strategies. If they are passed through, your bills behave like a pass-through energy contract on top of the flexible commodity price, so ask how each part is treated before you sign.
Standing charges, capacity charges for half-hourly sites, VAT and the Climate Change Levy appear on the bill as well.
The risks, stated plainly
Flexible buying is not a way to beat the market; it is a different way of carrying market risk.
- Prices can rise: if the market moves up while part of your volume is still open, your costs go up. Fidelity Energy's terms say flexible procurement is inherently more risky than fixed procurement, and that it will not be held liable for market movements that increase a customer's costs.
- Budgets are less certain: until enough volume is bought, you do not know your final rate. Some products confirm a rate for each delivery year before it starts, which helps.
- Decisions take time: someone in your business needs to understand the strategy, read the reports and sign documents promptly.
- Volume matters: the plan is built on your expected consumption, so large changes in usage can affect the outcome. Ask how the contract treats them.
No one can promise that a flexible strategy will produce a lower price than fixing. Ask for the strategy in writing, with its triggers, and make sure the people who approve budgets agree with it.
Flexible contract terms explained
Flexible contracts come with their own vocabulary. These are the terms you are most likely to see in a proposal or a monthly report:
| Term | What it means |
|---|---|
| Tranche | One portion of your expected volume, bought at a particular time and price |
| Hedge | A purchase that fixes the price for a set quantity of energy. Fidelity Energy's terms describe energy hedges as transactions with the supplier to fix or un-fix the price of a certain quantity of energy for a delivery period |
| Hedged position | How much of your volume has been bought so far, and at what prices |
| Open position or market exposure | The volume not yet bought, which is still exposed to market prices |
| Trigger | An agreed price level at which more volume is bought, or a decision is referred back to you |
| Delivery period | The period the energy is bought for, such as a contract year |
| Trading policy | The written rules for buying: strategy, limits, triggers and who approves trades |
| Letter of Authority | Your written permission for the intermediary to deal with the supplier on your behalf |
If a term in a proposal is not in this list, ask for it to be explained in writing before you sign. A clear strategy should be understandable by the people who sign off your budget, not only by the traders who run it.
Not sure which option suits you? Ask us
Tell us about your premises and usage and we will explain the options that fit.
Who flexible energy contracts suit
Ofgem's view is that flexible contracts suit large businesses that use a lot of energy. In practice they tend to fit organisations that:
- Have high consumption, often across several sites, with half-hourly meters
- Can accept some variation in energy costs in exchange for not fixing everything on one day
- Have a finance lead or board who will agree a written risk policy and read regular position reports
- Run energy-intensive operations, as many energy for manufacturers users do, where the timing of energy purchases matters to the budget
Fidelity Energy's ready-made flexible strategies are for businesses using from 100,000 kWh a year per utility, with a bespoke strategy for larger users. For most micro and small businesses, a fixed-rate contract is simpler and is usually what suppliers offer. If you are unsure which camp you are in, we can help you find out.
How we can help
We introduce you to Fidelity Energy, an independent energy consultancy and broker that offers both fixed and flexible procurement. We help you gather your half-hourly data, bills and contract dates, and Fidelity Energy assesses whether your consumption suits a flexible approach, explains its strategies and trading policy, and arranges the supply contract and trading documents if you go ahead. Your supply contract is with the energy supplier.
Want to know whether a flexible contract fits your sites, and what the options would look like? Contact us.
How Forever Communications helps with business gas and electricity
Forever Communications is part of Forever Group, which looks after phone systems, business mobiles and connectivity for UK organisations. For business electricity and gas, we work as an agent of Fidelity Energy, an independent business energy broker that prices your requirements with the suppliers on its panel. We are not an energy supplier, and neither is Fidelity Energy.
- Make sense of your bills: we can help you read unit rates, standing charges, meter details and the other costs on your invoices
- Like-for-like quotes: we help you gather your meter numbers, consumption and contract end dates so suppliers quote on the same basis
- The right tariff type: we can talk you through fixed, flexible and pass-through contracts, green electricity and green gas options before you decide
- Better timing: we help you plan a renewal ahead of your contract end date, or move off deemed and out-of-contract rates when you move premises
- Your choice: you decide which quote, if any, to accept; prices and terms are set by the suppliers and confirmed at quote, including the broker commission
We work with offices, shops, hospitality, landlords, manufacturers and multi-site organisations. Send us a recent bill and we can take it from there.
Frequently asked questions
What is a flexible energy contract?
A flexible energy contract lets a business buy its gas or electricity in portions over time, instead of fixing one price for the whole term. Ofgem says they are sometimes called structured contracts and suit large businesses that use a lot of energy. The commodity price is built from several purchases made under agreed trading rules.
Is a flexible energy contract riskier than a fixed one?
Generally, yes. Part of your price stays open to the market until it is bought, so costs can rise as well as fall. Fidelity Energy's own terms say flexible procurement is inherently more risky than fixed procurement. Triggers and a written risk policy are there to manage that risk, not remove it.
Who can get a flexible energy contract?
Flexible contracts are usually offered to large energy users, often with half-hourly meters and high annual consumption across one or more sites. Fidelity Energy's ready-made flexible strategies start at 100,000 kWh a year per utility. Most micro and small businesses are offered fixed or variable tariffs instead.
Can I switch from a flexible energy contract to a fixed one?
Fidelity Energy says its flexible procurement contracts can be converted to fixed at any point: it buys your remaining volume at that day's market rate and fixes the rest of the term. Other providers' terms differ, so check the contract and trading policy before you sign.
Are non-commodity costs included in a flexible contract?
They are part of your bill, but flexible buying covers the wholesale energy only. Network charges, policy costs and taxes are priced separately, either fixed for a period or passed through as they change, depending on the product.
What is a tranche in energy buying?
A tranche is one portion of your expected energy volume, bought at a particular time and price. Buying in tranches spreads purchases over many dates so that no single day decides your whole price.
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