Fixed vs. index pricing

The short version

Every large electricity buyer faces the same core procurement decision: lock in a fixed price for certainty, or ride the index and accept price volatility. Neither is universally better. The right answer depends on the forward curve, your organization's risk tolerance, your ability to absorb bill volatility, and your view on where prices are headed.

A fixed price contract sets a flat $/MWh rate for a defined term — typically 1 to 5 years for C&I buyers, 10–25 years for large industrial or PPA structures. You know exactly what you'll pay. You give up the upside if market prices fall below your locked rate, but you're protected if they spike above it. A index price contract passes the wholesale market price through to you — often with a small adder for the retail supplier's margin and cost to serve. You capture market lows but are fully exposed to spikes.

When fixed pricing makes sense

Fixed pricing is appropriate when price certainty has high organizational value — budget-sensitive operations, thin-margin businesses where energy is a significant cost, or organizations that cannot manage the volatility of index pricing in their P&L. It also makes sense when the forward curve is backwardated (future prices below current spot) and you believe the curve is correct, or when market conditions suggest significant upside price risk that you want to avoid.

When index pricing makes sense

Index pricing is attractive when the forward curve carries a risk premium above expected spot prices — meaning fixed rates are expensive relative to where spot is likely to trade. Organizations with flexible loads that can reduce consumption during high-price periods can effectively self-insure against index spikes. Large buyers with multiple facilities can average index exposure across a portfolio, reducing single-site volatility.

Hybrid structures

Most sophisticated buyers don't choose all-or-nothing. Block and index structures hedge a base load at a fixed price while leaving incremental load on the index. Collars cap upside exposure while retaining some downside participation. Layered procurement builds the hedge over time — fixing portions of future load at different times — reducing timing risk on the fixed price decision itself.