Cameron Von Hollander
Energy Advisor 
Freedom Energy

Published: December 14, 2023

Introduction: An Overview of Index Products

The U.S. deregulated energy market presents a wide array of products tailored to meet the distinct energy needs of each business. While fixed price, block, and hedge options are commonly utilized, today’s focus shifts to the often overlooked Index products, exploring their advantages and disadvantages.

The Benefits of Index Products

  • Cost Savings Opportunities Utilizing the real-time market through Index products offers potential savings. Consumers who can modify their electricity use in response to real-time price changes could see reduced costs, particularly during periods of low demand or high renewable energy generation. This dynamic pricing model incentivizes individuals and businesses to align their high-energy usage with times when electricity is more affordable, enhancing resource efficiency.
  • Enhanced Energy Solutions: The full potential of Index products can be unlocked when paired with energy solutions such as battery storage. Clients can take advantage of having a battery on-site by charging it during off-peak hours when the demand on the grid and prices are at their lowest (overnight) and offload that stored energy during the peak hours of the business day when real-time prices are at their highest. A business can partake in significant cost avoidance by using battery storage to take advantage of the low off-peak pricing.
  • Sustainability Advantages: Apart from the potential for considerable savings, opting for an Index product aligns well with sustainability objectives. These products support environmental stewardship by encouraging electricity usage when renewable energy generation is high. During times when the grid receives a substantial input from renewable sources such as solar or wind power, real-time pricing motivates consumers to use electricity in these greener, more sustainable intervals. This practice not only aids in environmental preservation but also furthers the broader mission of shifting towards a more sustainable energy system.

Challenges of Index Products

  • Price Volatility: The cost of electricity can vary significantly throughout the day based on factors such as supply, demand, and weather conditions. Clients who are unable to change their usage patterns or implement load shifting measures may face higher rates during high demand periods, leading to a level of financial unpredictability.
  • Complexity in Management: Unlike fixed-rate products where clients have a predictable monthly bill, Index products require constant monitoring of market conditions. This can be challenging for individuals or businesses who prefer the simplicity of a fixed-rate and may not have the time or expertise to stay informed about the dynamics of the energy market.

Index Products: Not a One-Size-Fits-All Solution

Index products may not suit businesses with operations that cannot shift to off-peak hours. The potential cost savings need to be weighed against the practical challenges of an ever-fluctuating pricing model.

Opting for an Index product involves weighing its potential for cost savings and environmental benefits against the challenges of price volatility and management complexity. It’s a decision that should be based on an individual’s ability to adapt to dynamic pricing and align energy consumption with market conditions.

Interested in exploring Index energy products for your business?

Contact us to understand if they align with your energy needs and goals. Let our experts guide you through the benefits and challenges to make an informed decision.

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