Back to glossary
Market & Industry Terms
Hedging
Key takeaways
- Hedging means buying energy (or financial instruments) in advance to fix the price of future usage.
- Suppliers hedge to give customers fixed quotes; large buyers can hedge directly on flexible contracts.
- Hedging trades certainty for missed upside — if wholesale prices fall, you don’t benefit from the drop.
What is hedging in energy?
Hedging is the practice of locking in prices for future energy consumption ahead of time, instead of paying whatever the market price is on the day. Suppliers do it constantly; large business buyers do it on flexible contracts.
A fixed rate contract is a hedge from the customer’s point of view — you’re fixing your unit rate for the term in exchange for giving up the chance to gain from price falls.
Where hedging shows up
- Inside the supplier’s pricing for a fixed quote — they hedge against you.
- On a flexible contract where you (or your buyer) place click-down purchases over time.
- In wider forward-market trades months and years ahead of delivery.
Trade-offs to think about
Certainty vs upside: hedging gives you budget certainty but rules out gains if wholesale prices drop.
Timing risk: hedging too early in a high-price period can lock in a bad price for years.
Profile fit: hedges work best when your load profile is stable and predictable.
