For many large businesses and industrial consumers, any purist approach to procuring the vast amounts of energy to fill their needs presents problems. Fixed rate plans often charge prices that are higher than current market rates, and the difference of a penny or two can mean a difference of tens of thousands of dollars. This difference can become especially pronounced during gluts in the energy supply, with fixed rate payers paying far more than those paying market rates.
On the other hand, variable rate plans (also referred to as index price plans) expose large scale consumers to potential price spikes. An unexpected change in the energy market can quickly put a major dent in earnings.
Block pricing allows consumers to hedge against energy price spikes, while taking advantage of current pricing.
Block pricing plans are ideal for those who want to take a moderate, middle of the road approach by blending the benefits of the two major types of energy plans, while minimizing the negative aspects of each.
With block pricing, consumers choose to buy a set amount of electricity each month at a fixed price. Each of these monthly blocks may be equivalent in size (say, 1,000 megawatt-hours of electricity each month), or they may vary in size, corresponding to a company’s anticipated changes in energy consumption over time (for instance, 300 megawatt-hours per month during slow winter months, and 1,000 megawatt-hours per month during summer months of brisk business).
Then, the company agrees to purchase the remainder of their energy at a price based upon the current spot market price of electricity. By adjusting the ratio of the energy blocks purchased at fixed rates, versus the remaining energy purchased at the market rate, companies can adjust their level of risk. For instance, a company may choose to purchase a quarter, half, or three-quarters of their expected energy consumption in block form (consequently purchasing the remaining three-quarters, half, or one-quarter at market rate), and thus take a risky, moderate, or conservative approach to their energy procurement.
This allows a company to take advantage of potential dips in energy prices, while not leaving themselves vulnerable to price hikes. In other words, a “best of both worlds” approach.
For more information on how block pricing can benefit your company, please feel free to contact Energyrates.ca using our convenient contact form. We will be happy to assist you in any way we can.