One of the most consequential decisions a hotel operator makes about energy doesn’t involve any equipment or technology. It happens at contract signing time, when you choose between a fixed and variable energy rate. Get it right and you lock in savings or shield your budget from spikes. Get it wrong and you either overpay on a fixed rate when markets fall, or get blindsided by a variable rate when they surge.
What Fixed-Rate Contracts Offer
A fixed-rate energy contract locks in a price per kilowatt-hour (for electricity) or per therm or MMBtu (for natural gas) for a defined term — typically 12, 24, or 36 months. Your supply cost per unit doesn’t change regardless of what happens in the wholesale market. This provides budget certainty, which is enormously valuable for properties that operate on tight NOI margins.
What Variable-Rate Contracts Offer
A variable (or index) rate contract ties your price to the wholesale market — typically the monthly average or real-time spot price in your regional grid. In calm or declining markets, you pay less than a fixed-rate customer. In volatile or rising markets, you pay more. Variable contracts rarely have early termination fees, giving you flexibility to switch suppliers or contract structures as conditions change.
| ⚡ Energy Now Tip: Variable rates are not always a bad deal. During periods of market weakness — like mild weather, strong supply, or economic slowdown — variable customers can capture genuine savings. The risk is that markets can turn sharply and quickly. |
The Case for Fixed Rates in Today’s Environment
For most hotel operators managing energy as one component of a complex operating budget, fixed rates are the default recommendation in volatile market environments. The value of being able to set an energy budget and hold to it — for 12 or 24 months — often exceeds the potential upside from riding the variable market down.
Hybrid Structures: Getting the Best of Both
Sophisticated energy buyers sometimes use hybrid contract structures — fixing a base load (say, 75–80% of expected consumption) at a fixed rate while leaving the remainder on an index. This approach caps downside risk while preserving some upside exposure. Block-and-index and heat rate contracts are two structures that formalize this approach.
| ⚡ Energy Now Tip: Block-and-index contracts require market expertise to manage effectively. Energy Now can handle the ongoing market monitoring and block management for hotel clients who want the benefits of a hybrid approach without the operational overhead. |
Contract Term: Shorter vs. Longer
Beyond fixed vs. variable, contract length is a key decision. Longer terms (24–36 months) provide more sustained price certainty and sometimes attract better pricing from suppliers. Shorter terms (12 months) offer more flexibility to recontract when market prices fall. The optimal term depends on where current market prices sit relative to long-run averages — a forward curve analysis that Energy Now provides as part of contract advisory.
Questions to Ask Before Signing
Before committing to any energy supply contract: What is the all-in price, including all pass-through charges? What are the early termination terms? Does the rate include capacity charges or are they passed through separately? Is there an automatic renewal clause, and what is the opt-out window? What supplier credit and risk management practices apply?
The right contract structure depends on your risk tolerance, your market, and current forward prices. Energy Now provides independent contract advisory — we’re not tied to any supplier, so our recommendations are based entirely on what’s best for your property’s budget and risk profile.
Partner with us to create a smarter, more cost-effective energy strategy for your business. Contact us today for a consultation.
