Business Energy Tariffs Explained

Two businesspeople shaking hands
February 9, 2023
Min Read

Business energy tariffs come in various shapes and sizes, and choosing the best one for your business can be a challenge.

To make things a little easier, we’ve put together a quick guide to business energy contracts.

Fixed Business Energy Tariffs

A fixed business energy contract is characterised by the following:

- It runs for a set term

- Throughout that set term, your unit rates and standing charges will remain fixed

- You will not be able to switch to a new contract until your contract term has ended (doing so will result in penalties)

A fixed rate does not mean your bills will remain the same from month to month. It simply means that the price per unit of energy will not change. So when you usage goes up, you bill will go up.

Your daily standing charge will also remain the same throughout the duration of your fixed contract. Unlike the unit rate, the standing charge is a daily flat rate that you pay regardless of how much energy you use.

Switching during the fixed term is not advised, as it can come with significant penalties.

What if My Supplier Ceases Trading During the Fixed Term?

If your business energy supplier goes out of business during your fixed term, your supply will not be interrupted. Ofgem has processes in place to transition you to  an alternative supplier, so you don’ have to take immediate action. However, if you procure your energy through a third party consultancy, we would advise you to contact your account manager to discuss your options.

While your supply will not be interrupted, your rates may change. You can therefore shop around before you agree to enter a contract with your new supplier.

‘Out of Contract’ or ‘Deemed’ Rates

Out of contract rates, also known as deemed rates, are characterised by the following:

- Customers on a deemed rate are not tied into a fixed contract, and can switch to new supplier, or a fixed contract with the same supplier, at any time

- Deemed rates can fluctuate as the cost of energy goes up or down. This means that even if you used the same amount of energy from month to month, your bills could still change.

- You are not protected from sharp rises in energy costs, but you do have the flexibility to change your supplier

The Difference Between Business Energy Tariffs and Domestic Tariffs

Business energy contracts differ in several ways to domestic energy contracts. One of the key differences is the domestic energy price cap. The domestic price cap applies to standard variable tariffs – the term commonly used to describe residential ‘out of contract’ rates. It limits the amount a domestic energy supplier can charge customers who are not on a fixed term tariff.

For both businesses and consumers, out of contract/standard variable rates have been consistently more expensive. However, the recent sharp rise in energy costs has meant that domestic customers are in the unusual position of paying more for new fixed term contracts. The price cap, however, does not apply to business energy tariffs. Many businesses are therefore still opting to protect themselves from further potential price increases by fixing their energy.

Another key difference between domestic and business energy tariffs is the cooling off period. Consumers are allowed to change their mind up to 14 days after signing up to a new tariff, whereas businesses are not. Using a consultancy to help with your switch can help you secure the ideal contract for your needs, which may mitigate some concerns over making the right decision.  

Advance Energy Procurement

Though customers who are on a fixed tariff are not advised to try and switch during the contract term, they can still shop around for their next fixed term in advance.

We can help businesses secure rates for up to two years in advance of their current contract ending, so there’s never a wrong time to get in touch and seek advice.

If you’re considering switching your energy, get a quote or get in touch, and one of our friendly team will be delighted to assist you. For more information on switching your energy, read our Business Energy Procurement Guide.