• 8 min read
Block-and-Index Hedging Strategies for Commercial Energy
Fixed contracts are simple but can over-insure variable loads. Block-and-index hedges a predictable portion (the block) and floats the rest at market index. Index-plus pegs pricing to index with an adder. The aim is to match certainty to predictability, not to overpay for insurance nor take undue budget risk.
When Fixed Makes Sense
Highly predictable baseloads and tight budgets benefit from fixed pricing. Watch swing tolerances: too narrow and you risk penalties; too wide and you pay for unused certainty.
Designing a Block
Estimate a conservative baseload from interval data—often the 20th–30th percentile of hourly load by season. Hedge that with fixed blocks; leave the variable tail indexed. Reassess quarterly as operations change.
Index-Plus: Capture Dips, Cap Markups
Index-plus allows participation in market dips while capping the supplier’s markup. Ensure the adder, losses, and pass-throughs are explicit. Compare total landed cost under realistic hourly profiles.
Layering and Triggers
Rather than time the market perfectly, layer hedges and use pricing triggers. Lock portions at predefined targets and preserve flexibility for future windows.
Related: Demand/Capacity/Transmission Explained, RTO/ISO Market Timing Signals.
Keywords: block-and-index, index-plus, commercial energy procurement, hedging strategy, commercial electricity savings.