How to Protect Your Budget from Energy Price Volatility
Price spikes don’t just raise your bills: they wreck budgets, upset forecasts, and create tense board conversations. Here’s how UK businesses can protect themselves against volatility and regain financial control.
For UK organisations spending between £500k and £5M annually on energy, volatility is the defining challenge of the decade. Wholesale prices swing by double digits in weeks. Regulatory changes introduce new costs. Meanwhile, finance teams are expected to present stable, board-ready budgets. How can you reconcile these conflicting realities? By actively managing price risk.
Why energy price volatility matters
Volatility isn’t just about higher prices. It’s about unpredictability. Budgets thrive on predictability, when costs are known and margins can be protected. When they aren’t, you’re left firefighting:
- Board friction: Explaining why last quarter’s forecast is suddenly obsolete.
- Margin erosion: Profitability gets squeezed when energy spend blows past assumptions.
- Operational disruption: Some businesses defer investment or hiring because of energy uncertainty.
Fixed, flexible, or hybrid: choosing your shield
The first line of defence against volatility is procurement structure. Whether you choose a fixed, flexible, or hybrid contract determines how much exposure you carry:
- Fixed contracts: Price certainty, but no benefit from market dips. Good for tight budgets, bad for opportunists.
- Flexible contracts: Market tracking, but requires active management. Good for those with risk appetite and monitoring capability.
- Hybrid approaches: Blending the two, often the most practical for mid-market businesses.
See our Procurement Strategy guide for a deeper breakdown.
Beyond contracts: building budget resilience
Procurement is important, but resilience requires more. Finance leaders need structures that absorb shocks without derailing operations. Key tactics include:
- Scenario modelling: Forecast costs under different wholesale price assumptions to stress-test budgets.
- Hedging strategy: Use phased purchasing or supplier options to smooth exposure across time.
- Variance reporting: Track energy spend against budget monthly, not annually, to catch gaps early.
- Contingency reserves: Allocate a percentage of budget for volatility buffers, just as you would for FX or credit risk.
The MHHS factor
Energy risk isn’t only about markets – it’s also about regulation. The Market-wide Half-Hourly Settlement (MHHS) programme will make consumption data more granular, which means billing will become more sensitive to when and how you use energy. If you’re not prepared, volatility won’t just hit from outside markets – it will creep into your usage patterns too.
Cost leakage: the hidden volatility
Even if you lock in a great contract, unmanaged operational risks create another form of volatility: cost leakage. Examples include default rates, incorrect billing, or missed rebates. These are avoidable, but they require attention and governance.
Steps to take right now
If your renewal is within 12 months or you’re under pressure to deliver budget certainty, here’s where to start:
- Analyse your current exposure: fixed vs variable costs, contract expiry, clauses.
- Model three scenarios: base case, +15% price shock, –10% dip.
- Engage suppliers or advisors on hybrid structures that balance certainty and flexibility.
- Present a board-ready risk register: not just “the price is up” but “here’s how we’re controlling it.”
Final thought: volatility managed is credibility earned
Boards don’t expect you to control global energy markets. But they do expect you to anticipate volatility and shield the business. By combining procurement strategy, scenario modelling, and proactive monitoring, you can protect your budget and your credibility.
What’s next?
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