Right now energy expenses are at the forefront of business struggles, and choosing the right contract can impact budgets, profitability, and even competitive positioning.
As we approach 2025, businesses face a critical decision: opt for a fixed-rate energy contract or a variable-rate contract.
We would suggest that businesses seriously consider fixed-rate contracts to shield themselves from the anticipated volatility in energy markets. Here’s why.
Understanding fixed and variable energy contracts
Before diving into the reasons to choose a fixed-rate contract, let’s define the two main options:
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Fixed-rate energy contracts: With this type of contract, your energy price per kilowatt-hour (kWh) remains constant throughout the duration of the contract, regardless of market fluctuations.
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Variable-rate energy contracts: With a variable contract, energy prices can fluctuate based on market conditions. Prices can decrease during periods of low demand but may increase significantly during peak periods or due to unforeseen market disruptions.
Why energy prices could spike in 2025
Energy markets are inherently volatile, and 2025 is shaping up to be particularly turbulent due to several factors:
- Global Supply Chain Pressures: Persistent disruptions in global energy supply chains—exacerbated by geopolitical tensions and the energy transition—could lead to sudden price surges.
- Increased Energy Demand: As economies recover and industries expand, energy demand is expected to rise. This could result in heightened competition for resources, driving up prices.
- Regulatory Changes and Carbon Pricing: Governments worldwide are implementing stricter environmental regulations and carbon pricing mechanisms. These policies are expected to impact energy costs, particularly for fossil fuel-derived power.
- Market Speculation: Energy markets often react unpredictably to global events, and speculation can amplify price volatility.
These factors make it essential for businesses to secure predictable energy costs to avoid budgetary shocks.
The Advantages of Fixed-Rate Energy Contracts
- Budget Certainty: Fixed-rate contracts provide stability. Knowing your energy costs in advance allows for precise budget planning, shielding you from sudden price increases that could strain cash flow.
- Risk Mitigation: In a volatile market, a fixed-rate contract acts as insurance. Even if market prices skyrocket, your rates remain constant, offering peace of mind.
- Easier Financial Forecasting: Predictable energy costs simplify long-term financial forecasting, enabling businesses to allocate resources more effectively.
- Protection from Price Spikes: With energy prices projected to rise in 2025, locking in a fixed rate now ensures you won’t bear the brunt of market volatility.
- Improved Negotiating Power: Entering into a fixed-rate agreement during a period of relatively low prices enables businesses to negotiate better terms. Waiting too long could mean higher baseline rates.
The Downsides of Variable-Rate Contracts
While variable-rate contracts can seem appealing during periods of declining prices, they come with significant risks:
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Unpredictability: Prices can rise unexpectedly, making it difficult to maintain financial stability.
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Higher Costs Over Time: Businesses that choose variable-rate contracts during periods of market volatility often end up paying more in the long run.
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Operational Challenges: Sudden energy price spikes can disrupt financial plans, forcing businesses to reallocate budgets or delay investments.
Why Acting Now Is Crucial
Locking in a fixed-rate contract early can provide a competitive edge. Energy suppliers often offer more favourable terms to businesses that commit in advance. Waiting until 2025 could mean higher baseline rates and fewer options.
Additionally, many suppliers are increasingly emphasising renewable energy. Businesses that prioritise sustainability can secure fixed-rate contracts tied to renewable energy sources, aligning with environmental goals while protecting themselves from price volatility.
Fixed Rates for a Stable Future
In a time of uncertainty, businesses need stability to thrive. Fixed-rate energy contracts offer predictability, protection, and peace of mind, making them the smarter choice for 2025. By locking in rates now, your business can sidestep potential price spikes, ensuring financial stability and operational efficiency.
Choosing a fixed-rate contract isn’t just a hedge against market risk—it’s a proactive step toward securing a stable and prosperous future for your business.
If you're looking to save money on your energy bills then why not get in touch today? The relationships Resolve Energy has developed with over 24 of the UK’s biggest business energy suppliers allows our energy experts to source the best business energy rates available for your company right when you need them. Request a free quote today and start saving money on your energy.
