Block-and-index energy pricing for business loads

Define the block before discussing the percentage

A block may be a specified MW quantity in particular hours, a monthly energy quantity, or another contract-defined shape. The percentage of annual usage it represents can change as operations change. Ask whether the block applies every hour, only on-peak hours, or another calendar. Identify holidays and time zones. A nominal 50% hedge is ambiguous without those definitions, and two suppliers can price different obligations while using that same sales description.

Residual exposure can be positive or negative

Consumption above the fixed block is generally settled under the index and adjustments. When use falls below the block, the agreement determines how excess purchases are settled. The business might receive a market-based value rather than its original fixed price and could face additional costs. Solar installation, outages, production shutdowns, and seasonal changes can all create unexpected excess. Model those events at interval level when the block is interval based instead of relying solely on annual totals.

Governance is part of the product

Decide who can buy additional blocks, when approvals are required, and how positions are tracked. Suppliers may offer conversion or layering services with specific limits and fees. Keep an exposure schedule showing fixed quantities and unhedged consumption for each period. This is a commercial energy-management exercise, not a speculative trading recommendation. Accounting, legal, and treasury review may be needed depending on the structure, credit support, and whether financial instruments are involved.

Hypothetical hour-by-hour settlement

Assume an illustrative one-hour block of 1 MWh costs $60/MWh. If the facility consumes 1.5 MWh while the residual index is $100/MWh, the modeled energy cost is $60 + $50 = $110. If it consumes only 0.5 MWh, settlement of the unused 0.5 MWh follows the excess-volume clause; it is not automatically a $30 refund. Ask for that exact second calculation in the offer. Adders, losses, and other services are excluded from this simplified example.

Practical review checklist

• Define block MW or MWh, hours, time zone, calendar, settlement location, and applicable losses.
• Model shutdowns and low-load intervals as well as high-usage and high-price scenarios.
• Read excess-volume settlement and any restrictions on adding, reducing, or converting blocks.
• Track each authorized purchase and retain a current exposure schedule for finance and operations.

Questions & answers