Energy procurement between cost certainty and market opportunity: How companies manage risks without missing out on favorable prices – Creative image on the topic, with AI: Xpert.Digital
Energy costs under control: How companies combine security and favorable market prices
Fixed price or spot market? The right energy strategy for companies
Buying energy cheaply without risking the margin: That's what matters
Energy prices can fluctuate dramatically within a short period: Even periods of negative market prices don't preclude a high average price. For companies, it's therefore crucial when they consume electricity or gas, how well their demand can be planned, and what costs they can absorb during price spikes. A fixed price provides planning security but usually eliminates the company's opportunity to benefit from later price decreases. An open market share offers this opportunity – but also increases the risk of rising costs.
The right procurement strategy is therefore rarely a simple either-or decision. It can combine different hedging points, flexible contract volumes, and a deliberately limited proportion of short-term procurement. The prerequisite is that price risks are considered together with consumption forecasts, liquidity, contract terms, and the company's financial resilience. This article shows what matters in energy procurement and how companies can create security without losing sight of potential market opportunities.
Those who only buy security may pay too much – those who only bet on falling prices risk their profit margin
Making energy costs more predictable while simultaneously benefiting from favorable market movements is not a contradiction. However, companies must overcome a common misconception: there is no single procurement time or contract model that permanently combines security, flexibility, and the lowest price. Rather, economically sound energy procurement arises from the conscious allocation of risks, quantities, and decision-making points.
The crucial question, therefore, is not whether a company should purchase all its energy at a fixed price or exclusively at short-term market prices. The decisive factor is what portion of its costs it needs to hedge, what fluctuations it can absorb, and where usable flexibility actually exists. A manufacturing company with long-term fixed sales prices requires different hedging strategies than a company that can pass on energy price changes in the short term or shift its consumption accordingly.
This is about more than just securing the lowest price. Energy prices impact contribution margins, liquidity, investment decisions, and competitive position. A procurement strategy is therefore only convincing if it aligns with the business model. Its success is not measured by whether the lowest market price was ultimately achieved, but by whether the company remains economically viable under varying market conditions.
Why the average price only incompletely describes economic reality
Energy markets cannot be reliably explained by a single price figure. Even with electricity, significant differences can occur within a single day between periods of high renewable energy production and hours of low supply. Therefore, for companies, the average market price is not the only relevant factor; the price during their actual consumption is crucial.
Analyses for the German electricity market demonstrate how differently market phases can develop. From January to April 2025, the average day-ahead price was around €103 per megawatt-hour, compared to around €66 in the same period of the previous year. At the same time, the number of hours with negative prices increased from 82 to 119. Hours with prices above €200 per megawatt-hour increased from one to 66 in the same comparison. More hours with favorable or even negative prices therefore do not preclude a higher average price level.
This pattern was also evident in the summer. Between May and August 2025, 346 hours with negative prices were recorded, compared to 291 in the same period of the previous year. Nevertheless, the average price rose from €71.77 to €74.11 per megawatt-hour. At the same time, the observed price range widened: the lowest price was around minus €250, the highest around €476 per megawatt-hour. These figures describe a specific historical period and are not a forecast. However, they illustrate why procurement decisions should not be based solely on average values.
For a company with consistent consumption, such fluctuations have a different impact than for a company that primarily produces during peak hours. Those who can shift their consumption to cheaper time slots have an economic advantage. Those who don't have this option either need stronger hedging strategies or must consciously factor greater fluctuations into their calculations.
Planning certainty does not mean freezing every cost component
An important distinction concerns the scope of the security. A contractually fixed energy price is not automatically a completely fixed invoice amount. In addition to the actual energy procurement, network charges, taxes, levies, metering costs, and other contractual components may apply. Which items may be changed or passed on depends on the specific contract terms.
Significant differences also exist between companies. Therefore, model calculations for industrial electricity prices separately consider whether a company can claim discounts on network charges, electricity tax, concession fees, or levies. For example, modeled industrial electricity prices for January 2025 were shown as 17.99 cents per kilowatt-hour without discounts and 11.69 cents with corresponding discounts. Such figures are not universally applicable offers, but rather illustrate how strongly legal and structural framework conditions can influence the overall price.
This has a clear consequence for corporate management: Procurement-side price hedging must be considered separately from other cost risks. Otherwise, a false sense of security arises. A company might believe it has completely fixed its energy costs, even though relevant components of the bill remain variable.
Furthermore, the total cost depends on the amount consumed. Even a fixed price per kilowatt-hour won't prevent a budget increase if additional machines, longer operating times, or a cold winter increase demand. Good planning therefore combines price, quantity, and structural assumptions, instead of considering only a single tariff.
The right question about risk begins with one's own business model
Before making any decisions regarding fixed prices, tranches, or spot market shares, a company should determine its financial capacity. Simply distinguishing between a cautious and a risk-tolerant approach is insufficient. What's needed is a concrete translation: How much can annual energy costs increase without jeopardizing profits, liquidity, or contractual obligations?
A company with stable sales volumes, long-term customer contracts, and low margins will assess energy price risks differently than a supplier with short-term adjustable sales prices. Equally important is the question of whether higher costs can actually be passed on. A contractual price adjustment clause is of little use if its economic enforcement fails due to the competitive situation or only takes effect months later.
This puts timing in the spotlight. If sales prices are fixed for twelve months while energy is primarily procured on a short-term basis, an open position arises. The company then bears a procurement risk that may not align with its sales policy.
Conversely, very long-term energy hedging can be problematic if sales and production are uncertain. If demand falls, contractual purchase obligations or costs for utilizing surplus quantities may remain. Risk management therefore does not mean maximum hedging, but rather finding the best possible balance between secured revenues, expected consumption volumes, and existing delivery commitments.
Fixed prices offer reliability – but no subsequent price optimization
A fixed-price contract reduces uncertainty about the agreed energy price during a defined delivery period. This can be of considerable value to companies: calculations become more reliable, offers can be prepared more accurately, and short-term market fluctuations lose some of their impact on operating results.
This security, however, comes at a price. The supplier must insure or bear the assumed risks. Depending on the contract model, factors such as procurement costs, quantity flexibility, profile risks, financing, and creditworthiness can influence the pricing. A seemingly higher quoted price may therefore include additional services that are billed separately in a more affordable model.
If market prices fall after the contract is concluded, the agreed fixed price generally remains valid. This is not a failure of the insurance, but rather how it works. Those who purchase protection against rising prices typically forgo full participation in subsequent price declines with a simple fixed price.
Problems arise when this decision is subsequently evaluated with a different objective in mind. Insurance against adverse developments should not be judged solely on whether the insured loss actually occurred.
A fixed price makes economic sense primarily where there is a clearly definable minimum requirement and cost certainty offers significant operational benefits. Completely fixing uncertain quantities over long periods is less convincing if subsequent adjustments are expensive or impossible.
Staggered procurement distributes the timing risk
Structured procurement in partial quantities lies between a complete fixed-price agreement and simply purchasing at short-term market prices. In this approach, the anticipated demand is not secured all at once, but rather at several points in time. The individual purchases can relate to different delivery periods, such as months, quarters, or years.
The key advantage is reducing dependence on a single decision. Fixing your entire annual energy requirement on a single day makes the outcome heavily dependent on the market conditions at that time. Staggering the purchase over time spreads this risk. This same logic also shapes the procurement practices of many energy suppliers, who cover their needs gradually on the futures market.
However, staggering the purchases does not guarantee a lower average price. In a continuously falling market, buying later would have been more advantageous; in a continuously rising market, hedging early would have been preferable. The benefit of staggering the purchases lies not in a guaranteed excess return, but in a more robust decision-making structure under uncertainty.
This requires binding rules. If purchases are always postponed when prices rise, in anticipation of a decline, the model loses its purpose. Equally problematic is suspending all planned hedges when prices fall without reviewing the remaining risk exposure.
A sound strategy therefore defines a time-dependent hedging path, permissible bandwidths, and clear decision-making authority. Market monitoring complements these rules but does not replace them.
An open market share creates opportunities while simultaneously limiting security
An unhedged procurement share allows companies to benefit from lower short-term prices. At the same time, it keeps them vulnerable to price spikes. These two characteristics are inextricably linked.
A simplified example illustrates the relationship. A company requires 10,000 megawatt-hours annually. It hedges 70 percent of this at €100 per megawatt-hour. The remaining 30 percent is procured on a short-term basis. If the average price of these short-term purchases is €60, the resulting blended price for the energy component alone is €88 per megawatt-hour. However, if the short-term average rises to €180, the blended price becomes €124.
Energy procurement thus costs €880,000 in the first case and €1.24 million in the second. Network charges, taxes, other price components, and potential structural costs are not included in this hypothetical example. The calculation also assumes that the quantity allocation is actually adhered to and that no additional deviations occur.
Full coverage for this energy component at €100 would have cost €1 million. The outstanding portion thus presents a potential return of €120,000, but in the depicted scenario, an additional requirement of €240,000.
This example does not recommend a hedging ratio of 70 percent. Rather, it illustrates why every ratio must be evaluated based on specific outcome scenarios. A particular open-ended percentage is not inherently right or wrong. The crucial factor is whether the company can bear the financial consequences.
Price ceilings can maintain flexibility, but they also have an economic value
Companies that want to benefit from falling prices while limiting extreme increases can consider contractual or financial models with price caps. However, such arrangements vary considerably in terms of design, availability, and cost.
A true asymmetric hedge protects against losses above a certain price level, while still allowing access to lower market prices. This advantage has economic value and is typically paid for through a premium or other contractual terms. Therefore, any offer that promises both complete protection and unlimited participation in falling prices must be examined particularly carefully for its trade-offs and limitations.
The consideration can be explicitly stated, but it can also be hidden in minimum prices, quantity restrictions, contract durations, or limited adjustment rights. With combined price floors and ceilings, some downward flexibility is sacrificed to finance upward price protection.
The time frame is also important. A cap on a monthly average is different from a limit on each individual billing interval. Similarly, protection for a standardized market price does not necessarily cover all costs of the actual consumption profile.
The evaluation should therefore not end with the product's title. What matters is the specific cash flow generated under different price and consumption scenarios.
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Strategies for optimizing energy procurement
Consumption forecasts determine the quality of any insurance coverage
Price risks can only be effectively managed if the expected energy demand is sufficiently known. A procurement strategy based on uncertain data can lead to high additional costs despite sound market decisions.
The annual amount is insufficient. With electricity, the crucial factor is when energy is needed. A business with pronounced peak loads has different requirements than a company with a continuous base load. Seasonal production, maintenance windows, holidays, and shift patterns further alter the profile.
Standardized forward contracts do not automatically reflect such patterns exactly. Therefore, costs can arise if the procured structure and actual consumption diverge. Depending on the delivery model, the supplier either absorbs this adjustment in exchange for a price component, or the company bears a greater share of the financial consequences itself.
A sound forecast combines historical measurement data with operational information. Planned production changes, new facilities, site relocations, or additional electrical consumers must be factored in early on. Historical averages alone are insufficient, especially when structural changes are involved.
Uncertainty should also be explicitly assessed. Instead of only planning for an expected annual quantity, it is advisable to distinguish between a relatively secure base requirement and variable additional quantities. The base requirement can usually be secured more reliably in the long term, while uncertain quantities require a different approach.
Overprocurement can be just as costly as a lack of hedging
Public discourse often focuses on the threat of rising energy prices. However, for businesses, the opposite problem is also relevant: they have purchased more energy than they will ultimately need.
If production declines, the surplus stock may have to be sold or settled at market prices, depending on the contract. If the market price is then lower than the original purchase price, a loss occurs. A procurement initially considered secure thus becomes a quantity and realization risk.
The combination of declining sales and falling energy prices is particularly critical. Operating revenue decreases, while at the same time, excess hedged energy incurs additional costs. Such correlations demonstrate why energy price risks cannot be considered in isolation.
Contractual quantity tolerances can mitigate this risk. However, their value depends on the width of the permissible range, the time period it covers, and how deviations are handled. A flexible annual quantity does not necessarily help in the case of significant short-term profile deviations.
The most economically advantageous contract is therefore not always the one with the lowest stated labor cost. In cases of uncertain sales, greater flexibility in quantity can justify a price premium. This added value should be assessed based on realistic production scenarios.
Operational flexibility turns price fluctuations into a usable advantage
Market opportunities don't only arise from strategic purchasing. A company can also influence its energy costs by adjusting its consumption over time.
Possible approaches include, for example, staggered charging processes, cooling with thermal storage, specific pumping operations, or production steps with sufficient intermediate storage. However, such options are only economically viable if the changes to the operational process do not cause significant disadvantages.
Simply looking at the electricity price is insufficient. Additional personnel costs, quality risks, equipment wear and tear, delivery times, and storage costs can negate any apparent advantage. Similarly, increased simultaneous use of electrical systems can raise peak loads. Network charges can include capacity and energy price components; therefore, their impact on the overall bill must be considered.
A hypothetical example: If 1,000 megawatt hours can be shifted to time windows with a procurement price that is €40 per megawatt hour lower, the calculated gross benefit is €40,000. Only after deducting all additional costs will it become clear whether the measure is profitable.
Flexibility should therefore be treated like a business resource. Information is needed on which tasks can be postponed, for how long, what lead time is required, and what costs are involved. Only then can technical deferral be transformed into a viable economic potential.
Negative stock market prices are not a free, comprehensive supply system
Negative electricity prices seem spectacular, but their economic impact is often overestimated. They refer to a specific market price within a specific time period. This does not automatically mean that a company receives money for its entire electricity consumption.
Whether negative prices are actually passed on depends on the contract. Additionally, network charges, taxes, levies, and service fees may still apply. Even if the energy component is negative, the overall bill for the additional kilowatt-hour can still be positive.
Furthermore, timing is crucial. A business only benefits directly if it consumes energy during the relevant intervals and its contract structure reflects the market prices accordingly. Those who produce at other times or have agreed to a fixed energy price do not automatically participate.
Even storage systems don't allow for unlimited use of negative prices. Charging and discharging losses, limited power output, available capacity, aging, and investment costs impose economic limits. The decisive factor is not a single particularly cheap hour, but the net return achievable over the entire usage period.
The correct conclusion, therefore, is not that hedging becomes unnecessary due to negative prices. Rather, the value of a precise distinction between unavoidable basic needs, flexibly shiftable consumption, and genuinely economical storage applications increases.
Long-term electricity supply contracts need more than just an attractive average price
Long-term power purchase agreements (PPAs) with producers can supplement a portion of energy procurement. They link energy procurement with a longer-term price or delivery agreement. However, their economic viability depends heavily on which risks remain with which contracting party.
A key factor is the generation profile. Solar power is primarily generated during the day, while wind power is weather-dependent. The needs of an industrial plant can differ significantly. Therefore, a favorable agreed price for generated quantities does not necessarily guarantee an equally favorable price for supplying the company's entire needs.
Production and consumption gaps must be balanced. Surpluses can be sold, and shortfalls can be procured. This creates market, quantity, and profile risks that must be considered in the valuation.
The contract duration also requires attention. Long-term price fixing can increase investment security, but at the same time make it more difficult to adapt to changing location or production needs. Creditworthiness, collateral, termination rights, and the handling of defaults become increasingly important as the contract term lengthens.
Such contracts are therefore neither inherently cheaper nor inherently riskier than other forms of procurement. They must be evaluated as part of an overall portfolio. Their benefits can lie in long-term predictability, a suitable generation structure, or support for operational decarbonization goals. However, these advantages should not be confused with a guaranteed reduction in all electricity costs.
Liquidity and contractual partners should be included in the same risk assessment
Hedging can be economically sound but still require short-term liquidity. This applies particularly to structures where collateral must be provided or market value changes must be financially compensated.
Depending on the instrument and contract terms, additional payment demands may arise even if the hedging fulfills its purpose in the long term. Therefore, a distinction must be made between the impact on earnings and solvency. A company can be protected against high future energy prices and still encounter difficulties if substantial collateral needs to be financed in the interim.
Not every supply contract contains such mechanisms. This is precisely why a thorough review is necessary, instead of applying risks across the board to all products. The actual clauses, thresholds, and collateral requirements are crucial.
Equally relevant is the risk of default by the contractual partner. If a supplier cannot fulfill their obligations, the company may have to find a replacement at short notice. If this occurs during a period of high prices, a seemingly favorable initial agreement can lose its economic protection.
The selection process should therefore consider price, financial stability, operational efficiency, and contract quality together. Splitting the contract among several partners can limit concentration risks, but it also creates additional administrative and coordination overhead. Here, too, the goal is to find a reasonable balance, not to maximize complexity.
Electricity and gas follow different patterns
Many risk management principles apply to both electricity and gas. Nevertheless, companies should not organize the procurement of both energy sources in the same schematic way.
In the electricity sector, the short-term alignment of generation and consumption plays a particularly important role. Weather-dependent feed-in and highly fluctuating demand mean that the consumption pattern significantly influences procurement success.
Gas can be stored on a larger scale. At the same time, temperatures, seasonal demand, international supply flows, and geopolitical developments can create significant price and volume risks. For heat-dependent consumption, it is particularly important to consider that a cold winter can lead to both higher volumes and a less favorable market environment.
For companies using both energy sources, an additional challenge arises: the risks must be considered together. Switching between electric and gas-based heat generation can create opportunities, but is limited by technical efficiencies, plant capacities, and operational requirements.
A common energy cost strategy is therefore sensible, without obscuring the differences between the individual markets. What works for a continuous base electricity demand is by no means necessarily the best solution for gas consumption, which is highly dependent on temperature.
Scenarios are more reliable than the search for the perfect forecast
No company can accurately predict energy prices on a long-term basis. Therefore, reliable procurement doesn't require a perfect forecast, but rather a strategy that can withstand several plausible scenarios.
This includes at least one favorable market environment, one medium scenario, and one adverse scenario. Such analyses become more meaningful when they combine price and quantity changes. For example, one scenario could examine higher prices with increased production, while another could consider falling prices with declining sales.
The evaluation should not only consider annual average costs. Monthly cash flow spikes, potential additional costs due to volume variations, and the impact on individual products or locations are also important. A company as a whole can absorb fluctuations, while an energy-intensive business unit could become unprofitable as a result.
Historical data helps us understand realistic ranges of fluctuation. However, it does not automatically limit future risk. A strategy that only works under known market conditions may fail in the face of structural changes.
The practical benefit of scenario planning lies in making decisions verifiable. Management can see what level of security an additional hedging component provides, what opportunities are lost as a result, and whether the remaining risk is compatible with the available financial resources.
Clear decision-making rules prevent costly impulsive reactions
Even a good strategy can fail if responsibilities and processes remain unclear. Energy procurement therefore requires a link between purchasing, finance, and operations.
The purchasing department evaluates offers and market mechanisms. The finance function assesses profit and liquidity risks. Production or operations provide information on quantities and flexibility. Management determines which risks the company is generally permitted to take.
These roles shouldn't be clarified only during a period of high prices. Under time pressure, the risk increases that individual decisions will be influenced by fear or hope. After sharp price increases, there may be excessive hedging; after price declines, necessary purchases are repeatedly postponed.
A binding framework therefore defines permissible instruments, durations, quantities, contractual partners, and approvals. Equally important are regular updates to the consumption forecast and transparent documentation of key decisions.
The effort required must be proportionate to the company size. A smaller business doesn't necessarily need its own energy trading operation. However, it does need transparency regarding which risks a supplier assumes, which remain with the company, and how the costs are structured. External support is valuable when it increases this transparency, rather than obscuring the decision behind complicated product names.
The right measure of success is not the cheapest purchase in retrospect
The quality of a procurement strategy cannot be reliably measured by whether it was subsequently cheaper than the lowest observed market price. This comparison presupposes knowledge that was not available at the time of the decision.
Equally unsuitable is often the direct comparison of a long-term hedged delivery price with a later spot market value. Both prices relate to different points in time, risks, and performance. Equating them may mean comparing a security acquired in advance with a result that will only be known afterward. Furthermore, the market structure explicitly distinguishes short-term spot procurement from gradual forward procurement.
Predefined benchmarks are more useful. These can include budget adherence, fluctuation limitation, forecast quality, total costs including services, and compliance with approved risk limits.
Missed market opportunities should also be considered. However, they should be evaluated in conjunction with the protection achieved. A strategy that appears more expensive in a falling market may simultaneously have prevented a reverse market trend from jeopardizing the company's profit margin.
Good procurement is therefore characterized by comprehensible decisions made under uncertainty. It does not have to anticipate every price movement, nor does it have to deliver the cheapest possible purchase every year.
Competitiveness is achieved through the combination of security, adaptability, and efficiency
The most economically convincing perspective combines three tasks: limiting unavoidable risks, keeping usable market opportunities open, and structurally improving energy demand.
Hedging protects, in particular, those quantities and time periods in which a company needs reliable cost information. Flexible procurement components can leverage price declines, provided their risks remain manageable. Operational adaptability makes it possible to actually take advantage of favorable market phases instead of merely observing them.
Energy efficiency complements this logic because it reduces the quantity affected by price risks. However, efficiency measures must also be evaluated economically: investment costs, production effects, maintenance, and service life must be factored in, as well as the kilowatt-hours saved.
The appropriate procurement structure remains subject to change. New facilities, altered sales markets, different shift patterns, or additional in-house production may necessitate adjustments. Therefore, a hedging ratio once established is not a permanently valid quality criterion.
Companies therefore do not have to fundamentally choose between security and market opportunity. Rather, they must determine where security is indispensable, what price they are willing to pay for it, and which open positions they can consciously maintain. The crucial skill lies not in predicting the next market downturn, but in combining energy prices, consumption, and financial resilience into a coherent economic concept.
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