When choosing a commercial energy contract, the structure behind your rate can make a big difference in how much you pay—and how much risk you take on. Two common terms you’ll hear are “fixed rate” and “Fixed Adder.” They sound similar, but they shape your energy costs in very different ways. Here’s what you need to know to make an informed decision for your business.
Locking in Budget Certainty
A fixed-rate energy contract is straightforward: you pay a set price per kilowatt-hour (kWh) for the duration of your agreement - generally regardless of what happens in the energy markets. This means that your rate remains unchanged whether market prices rise or fall. Occasionally, regulatory tax changes or pass-through charges may change this rate, but oftentimes it should stay the same.
Key benefits of a fixed rate:
- Budget certainty: You know exactly what you’ll pay per kWh, making forecasting and controlling energy expenses easier.
- Protection from market volatility: Market swings, seasonal spikes, or unexpected events won’t affect your contracted rate.
- Simplicity: There’s no need to track market fluctuations or complex formulas—your price is locked in.
Potential drawbacks:
- No benefit from falling prices: If market rates drop, you’re still committed to your higher fixed rate.
So, What’s a Fixed Adder?
A Fixed Adder isn’t a standalone product—it’s part of an index-based pricing structure, where you fix only part of your rate and the rest follows market prices. Specifically, you lock in the non-energy components—like transmission, capacity, and ancillary charges—while the core energy price varies based on the wholesale market index.
How it works:
- The price you pay each month is: Market Index Price + Fixed Adder.
- The market index price (such as the day-ahead or real-time wholesale price) changes regularly, reflecting current market conditions.
- The Fixed Adder is a set amount (often cents per kWh) that covers those non-energy components and sometimes broker fees.
Key benefits of a Fixed Adder:
- Potential Cost Savings: When market prices are low, you benefit directly by paying less than a fixed rate.
- Price Transparency: The structure makes it easier to see how much your price is market-based vs. retail markup.
- Market Participation: For customers who can monitor usage and pricing, this model supports energy efficiency and demand response strategies—consuming more when prices are low and reducing usage during peak price times.
- Flexibility: Can be paired with risk management tools or hedging strategies for sophisticated customers (e.g., larger commercial/industrial users).
- Short-Term Competitive Advantage: Often cheaper than fixed-price products in low or falling price environments.
Potential drawbacks:
- Market exposure: Your total price can fluctuate each month, making budgeting more challenging.
- If market prices spike, your costs will rise, even though the adder stays the same.
We explored the difference between fixed and index-based energy pricing on the blog in more detail. Check it out here.
Why the Difference Matters for Your Business
Choosing between a fixed rate and a Fixed Adder within your contract comes down to your risk tolerance and budgeting priorities. Catalyst Power offers a full suite of commercial electricity packages designed to fit your unique needs, including:
- Fixed Rate Plans: Lock in your price per kWh for full budget certainty and protection from market volatility.
- Market Flex Plans (not to be confused with Fixed Adder): A blended product that offers fixed-rate stability on part of your usage, while leaving some exposed to market-based pricing—offering potential savings in low-price periods.
- Balanced Portfolio: Combine features of fixed and indexed pricing into a customized strategy tailored to your risk profile and usage patterns.
Let us help you navigate commercial energy pricing and build a strategy that works for your business. Explore your options with Catalyst Power and power your business with confidence.
