Fixed energy contracts are sold on their simplicity and predictability. You know what you will pay. You can budget accordingly. There are no surprises. This is a compelling pitch — and for many consumers, the simplicity genuinely is worth the premium.
But fixed contracts contain a number of costs that are rarely made explicit, and understanding them changes the calculus considerably.
The Risk Premium You Pay Every Month
When your energy supplier offers you a fixed price, they are not giving you a guarantee out of goodwill. They are charging you for it. The price they set is based on their forward-market hedging costs — the price they have to pay to lock in supply ahead of time — plus a risk margin that compensates them for residual uncertainty.
In stable markets, this risk premium might be modest. But in volatile markets — and energy markets have been extraordinarily volatile since 2021 — the forward premium can be significant. When spot prices spiked across Europe in 2021 and 2022, suppliers who had hedged early were insulated, but new customers signing fixed contracts were paying prices that reflected the market panic baked into forward curves.
The risk premium is not disclosed. It is embedded in the per-kWh rate. You pay it regardless of whether actual spot prices end up above or below your fixed rate.
You Pay the Average, Not Your Pattern
Fixed rates are averaged across all hours, all seasons, all weather conditions. A business that runs most of its operations between 10am and 2pm on weekdays — a period that often sees lower prices due to midday solar generation — pays exactly the same per-kWh rate as a business that runs 5-7pm in winter. The fixed tariff does not reward your consumption pattern. It ignores it.
For consumers whose natural usage patterns align with cheaper periods in the spot market, this is a straightforward transfer of value — from you to your supplier.
Contract Switching Friction
Fixed contracts typically lock you in for one or two years, with break fees or notice periods if you want to leave early. This limits your ability to respond when market conditions change in your favour. If spot prices fall significantly — as they did in mid-2023 after the post-crisis spike — customers on fixed contracts cannot benefit.
The asymmetry here is worth noting: if prices go up, you are protected (that is what you paid for). If prices go down, you cannot participate (you are still locked in). The optionality only runs one way.
Making an Informed Choice
None of this is to say fixed contracts are inherently bad. For small consumers with genuinely inflexible usage, the peace of mind is real and the premium may be entirely reasonable. But for anyone consuming at meaningful scale — businesses, prosumers, large households — understanding the actual cost of that fixed-rate insurance is the first step to deciding whether you still want to buy it.