Ben Brading 5 min read

Understanding business energy contracts

Business energy contracts do not have a cooling-off period or price cap, so it is vitally important to ensure you understand all the terms before agreeing to a new contract.

This guide helps you understand the types of energy contracts available to businesses and the key elements to look for when reviewing a new contract.

Contents

Types of business energy contracts
Key elements of business energy contracts
What happens at the end of your business energy contract
How to cancel a business energy contract

Types of business energy contracts

Our business energy experts have summarised the key terms of the most popular business energy contracts:

Fixed business energy contract
Variable business energy contract
Pass-through business energy contract
Time-of-Use business electricity contract
Rollover business energy contracts
Green business energy contracts

Fixed business energy contract

A fixed-rate contract is the most popular choice for small business energy customers. Here are the key terms:

Unit rate: Fixed rate per kWh of electricity and gas consumed throughout the contract term.
Term: Typically between 1 and 3 years.
Exit fee: Expensive exit fee if you terminate early (except for a change in tenancy).

Fixed rate contracts provide certainty over future energy costs. Although your bills will vary over the year depending on energy consumption, you are protected from rises in the wholesale cost of energy.

💡Business energy suppliers offer their best rates as fixed contracts to attract new customers.

Variable business energy contract

A variable-rate contract is often described as a “flexible” tariff, as you can switch to another tariff or supplier at any time. Here are the key terms:

Unit rate: Rate per kWh of electricity and gas can change at any time to reflect market conditions.
Term: Rolling.
Exit fee: No exit fee, enabling you to switch business energy at any time.

Variable rate contracts are often significantly more expensive than the equivalent fixed tariff.

💡 A variable business energy contract is typically used as the deemed energy contract when you’ve just moved into a new property but haven’t set up an agreement with the current supplier.

Pass-through business electricity contract

A pass-through contract fixes the wholesale element of business electricity prices, while National Grid and Distribution Network Operator charges will change each year. Here are the key terms:

Unit rate: The wholesale element remains fixed while TNUoS, DUoS and BSUoS charges change annually.
Term: Typically between 1 and 3 years.
Exit fee: Expensive exit fee if you leave early (except when moving properties).

💡Some suppliers, like Scottish Power Business Energy, only offer pass-through fixed contracts to SMEs.

Time-of-Use business electricity contract

Time-of-Use business electricity contracts use different unit rates per kWh of electricity consumed depending on the time of day.

Time-of-Use contracts can either be fixed or variable and require one of the following business electricity meters:

Refer to our full guide to multi-rate business energy tariffs for more information on the types of time-of-use tariffs available and which businesses can benefit from these the most.

Rollover business energy contracts

A rollover business energy contract is an automatic agreement between you and your current supplier that kicks in when you reach the end of your fixed contract but haven’t made any arrangements to renew or switch suppliers.

Automatic rollover contracts are legally binding and typically have the following terms:

Unit rate: Rate per kWh of electricity and gas consumed fixed through contract.
Term: Typically one year.
Exit fee: Expensive exit fee if you choose to leave early (except when moving properties).

💡 Rollover business energy contracts are unnecessarily expensive and a frequent source of complaints against business energy suppliers. We recommend arranging a new fixed contract before the end of your current agreement.

Green business energy contracts

Green business energy contracts include an additional clause that guarantees how your supplier will purchase the energy they supply, as follows:

Green business electricity supplier:

Electricity will be generated exclusively from green sources such as UK wind farms.

Green business gas supplier:

Green biogas will be generated from an anaerobic digestion plant; or
The carbon footprint of natural gas will be offset through carbon credit purchases.

What are the key elements in your business energy contract?

Business energy contracts are legally binding, so it’s essential to understand all the terms and conditions.

Here’s our comprehensive guide to the different parts of a typical fixed business energy contract:

Details of your business

Business name – The legal name of your business, e.g. XXXX Limited. This business will be legally liable for adhering to the contract terms.
Business registration number – The registration code of your business on Companies House.
Business type – What your business does (usually defined by SIC codes).
Contact name – The day-to-day contact at your business responsible for the business energy contract.
Contact email address/phone number – Provide contact details so the supplier can reach you if any queries arise.

Details of your business energy supplier

The name of your supplier – The contract will typically be branded with the logo and name of your commercial electricity or business gas supplier.
TPI name – The name of the business energy broker you used to arrange your contract (if applicable).
TPI commission cost – This is the estimated amount of commission your business energy supplier will pay the TPI through the tariff.

Details of your electricity/gas supply

Supply type – Dual energy contracts don’t exist for commercial energy. Your contract will be either for electricity or gas supplies.
Supply address – The address of the property receiving the electricity/gas.
Product code – Most suppliers have a unique code for each supply type, so they can easily process the contract on their internal systems.
Standing charge – A daily business energy standing charge, priced in pence per day, that you’ll pay over the length of the tariff.
Unit rates – The amount you’ll pay per kWh of electricity/gas you use during the tariff. For multi-rate electricity tariffs, your contract will define different rates for different times of the day.
Contract end date – The date when your fixed agreement ends. See below for what happens at the end of a fixed business energy contract.
Contract end notice date – This is the date before the contract end date, which is the deadline for providing your supplier with a contract termination notice if you want to avoid being switched onto your supplier’s standard rollover/deemed energy contract terms.
MPAN /MPRN number – A unique identifier for your supply point on the local grid, either a MPAN for electricity or a MPRN for gas.
Meter serial number – A unique number to identify either your business electricity or business gas meter.
Expected Annual Consumption (EAC) – An initial estimate of your annual business energy consumption, measured in kWh. Actual meter readings during the contract will determine your energy bills.

Payment method details

Payment method – In a standard business energy contract, you’ll pay either by direct debit or with BACS on the agreed payment terms.
Expected annual cost – The expected electricity charges, including the standing and unit charges, are based upon the expected annual consumption.
Billing details – The address and contact details of where you want your business electricity bills and business gas bills to be sent.
Direct debit details – This is a standard direct debit guarantee form that most people will be familiar with, and it will include bank account numbers, sort codes, and bank details (if applicable).

What happens at the end of your business energy contract

The best way to manage business energy contracts is to actively make arrangements so that a new contract starts the day after your contract ends.

Below, we explain what happens in the final year of a fixed business energy contract.

One year before the contract end date

In the final year of a fixed energy contract, you can arrange a new business energy contract to start when your current contract ends – it’s the best time to find a competitive new fixed contract.

Most business energy suppliers will send fixed renewal terms for you to consider during the final year of your contract. We recommend comparing these rates to alternatives offered in the market to determine whether they are competitive.

We recommend using our business energy comparison service to collect fixed-rate quotes starting the day after your contract end date.

Termination window close date

All commercial electricity and gas suppliers require you to give a certain amount of notice before the end of the contract if you want to switch suppliers at the end of the contract.

The notice you need to give depends on your specific contract but is typically between 30 and 120 days.

💡 Business energy brokers will serve a termination notice on your behalf when arranging your switch to a new supplier. Please see our business energy contract termination template if you want to serve this notice yourself.

Contract end date

This is the date your fixed electricity and gas rate per kWh in your current contract will cease to apply.

If you reach the contract end date without making any other arrangements, you’ll continue to be supplied with electricity and gas under either a:

Rollover business energy contract, or
Standard variable business energy contract.

💡 Your business energy contract will state whether rollover or standard variable rates will apply at the end of the contract.

Here is a diagram representing the decisions to be made at the end of a business energy contract:

Decision tree - business energy contracts

How to cancel a business energy contract

Fixed business energy contracts typically last one to three years with a defined contract end date. If you want to end your contract before this date, you have two options:

Change in tenancy – If your company is moving out of the property supplied on your business energy contract, you can terminate your contract without paying an exit fee. Find out more in our guide to moving business premises.
Pay the exit fee – If you terminate a business energy contract before the end date, you will incur an exit fee. Termination fees are typically 5-15% of the remaining estimated charges, plus a market rate fee if prices have fallen. In most cases, termination charges are prohibitively expensive.

If your contract end date has passed and your contract has rolled onto a standard variable tariff, then you can cancel your contract at any time.

Is there a cooling-off period for business energy contracts?

Unlike home energy tariffs, there is no cooling-off period associated with business energy contracts.

When you sign a business energy contract, you are bound by its terms and conditions. Therefore, it is important to review the terms carefully before signing.

💡 The complexities of business energy contracts mean that most small businesses in Britain use a business energy broker to help them negotiate the best deal.

Our business energy contract comparison services

Our business energy experts specialise in helping British businesses find the best energy contracts.

In this guide, we’ve aimed to concisely summarise the important aspects of business energy contracts, but often, there is no substitute for talking to an expert.

Use our energy comparison services to discuss your options with our business energy experts:

Business energy brokers and their role in your contract

Our business energy experts are registered business energy brokers.

Business energy brokers work with a panel of business energy suppliers and can help arrange your next energy contract.

If you choose to work with a business energy broker, you’ll need to sign a Letter of Authority (LOA), which gives the broker certain permissions regarding business energy contracts.

Read our full guide to the business energy letter of authority to learn more.

Business energy contracts FAQs

Our experts answer common questions regarding business energy contracts.

Should I choose a long term business energy contract?

Large business energy customers can agree to long-term pass-through business energy contracts of up to ten years.

These long-term contracts allow businesses to hedge pricing risk around energy and are appropriate when they have long leases on commercial properties.

We do not recommend long-term contracts for small businesses, as exit fees are incredibly expensive if you need to exit a long-term contract early.

For more information, refer to our guide on business energy procurement.

Are verbal business energy contracts binding?

Yes, verbal business energy contracts are legally binding. A verbal business energy contract can save the hassle of paperwork, but be aware that they often take 20 minutes to complete.

The caller will need to run through all the key terms of the business energy contract.

If you have any questions about the terms of your verbal business energy contract, we recommend listening carefully and asking for clarification.