Flexible Energy Contracts: Are They Really Right for Smaller Businesses?
In recent years, flexible energy contracts have been heavily marketed as a smarter, more cost-effective way to buy energy. They sound great in principle: join a group of other customers, gain access to wholesale markets you couldn’t normally reach, and benefit from savvy trading that buys low and sells high on your behalf.
But are these arrangements (especially basket-style flexible contracts) really the best choice for smaller businesses?
The Allure vs. The Reality
For companies consuming under roughly 3 gigawatt-hours (about 3 million kWh) per year, flexible contracts are often presented as a golden ticket. Brokers pitch them with promises of lower costs and expert trading strategies. The glossy presentations, charts, and marketing language can make it seem like a no-brainer.
However, the reality is more complicated. Many flexible contracts, particularly those in baskets or consortiums, mean you’re giving up control over your purchasing decisions. If you’re locked into a pre-set strategy, it works, great; if it doesn’t, you’re stuck. And if your business needs certainty or a change of approach mid-contract, you may have no way to make it happen.
“The big word in there is control… if you’re going to a basket-style product, you’re relinquishing that element of control in the majority of cases.”
The Hidden Layers of Complexity
The conversation about flexible contracts often focuses narrowly on wholesale energy prices. This is only part of the story. Wholesale costs may make up around 40% of your energy bill, so a claimed 5–10% saving is really only affecting that portion, not your total costs. The remaining 60% non-commodity charges like network and policy costs, are often glossed over in the sales pitch.
Flexible contracts can also bring:
Volume tolerance clauses and balancing costs that can eat into savings.
Complex invoices with multiple lines that make forecasting more difficult.
The risk of poor or neglected trading decisions, leaving you exposed to higher prices.
Risk Means Different Things to Different Businesses
Energy traders think about risk in terms of market timing and price movement. But for many businesses, risk is about avoiding nasty surprises, like bills jumping from £250,000 to £350,000 a year. The stability and predictability of a fixed contract may outweigh the slim chance of a small saving through flexibility.
The Takeaway: Control Matters
If your broker only presents you with flexible basket options, it’s worth asking:
How comfortable are you giving up control over your energy buying decisions?
Is the potential saving big enough to justify the extra complexity and risk?
Have you fully explored fixed contracts or standalone flexible arrangements?
In the end, just because you’ve always used a certain type of contract doesn’t mean you should keep doing so. The energy market is complex, and complexity often hides more costs and risks than benefits.
