Blend and Extend energy contracts can help increase the length and lower the rate of the current energy contract while energy rates continue to fluctuate.
As energy prices in the UK continue to fluctuate, businesses keep seeking efficient methods to manage their energy costs. In May 2024, the electricity price in Great Britain was 72.3 British pounds per megawatt-hour, a significant decline from 2022. To address the unpredictable nature of energy markets, a blend and extend energy contract offers a strategic way for businesses to optimise and save on their energy bills. Additionally, businesses can use an energy advisory service to further manage and optimise their energy contracts.
Let’s explore the features and benefits of this contract and see how it could help your business save more money on energy in the long run!
What is a Blend and Extend Energy Contract?
A blend and extend energy contract increases the contract length and decreases the energy rates immediately. This contract type aims to benefit energy consumers by offering a lower charge than the current fixed prices even though they have signed a fixed-term contract with a higher rate.
Blend and extend contracts are a complicated type of energy contract that suppliers rarely offer. However, they have brought various benefits to businesses during the energy price crisis, especially for those struggling to pay their energy bills without government support since April 2023.
If your company needs business help with energy bills, consider a Blend and Extend Energy Contract to manage costs more effectively and secure better rates.
Advantages and Disadvantages of Blend and Extend Energy Contracts
Blend and extend contracts could help you get cheaper rates, and your suppliers will keep you as a long-term customer. However, they are not the best choice for every business. Let’s check out both the pros and cons of these contracts before going forward with them. For personalised advice, consider consulting a business energy consultancy.
Pros:
- You can save more on your energy bills with instant cheaper rates.
- The energy contract will lock you in at these cheaper rates, releasing you from the pressure of ongoing energy price increases during the contract period.
Cons:
- You normally cannot get the low rates as the current market rates. In case there are six months or less left to run your current contract, you should stay on your current rates to save money and switch suppliers when the contract ends.
- You might be required to contract with your current supplier for a longer time than you would usually want to.
How Does Blend and Extend Energy Contract Work?
Normally, you must wait for your current energy contract to end before signing a new one and getting new rates to kick in. However, with blend and extend contracts, just by extending your contract with your current supplier, you can achieve lower rates immediately without waiting for the switch to happen. Here is how this process operates. For more details, you can use energy contract management services to ensure a smooth transition:
- Blended rate: Based on your contracted rate and the current market rate, your supplier will take a blended rate somewhere in between these two rates. The supplier can apply this rate straight away.
- Extended contract: Blend and extend contracts often last for 12 to 24 months no matter how long your current contract remains. You must follow these contract terms for this set period.
Should Businesses Sign Blend and Extend Energy Contracts?
Blend and extend is particularly effective for businesses with mid-range, fixed-price energy contracts, typically consuming between 100,000 and 10 million kilowatt hours.
In volatile markets, you might find yourself locked into a contract with rates higher than current market prices if costs decrease. This results in overpaying for energy. Conversely, if you’ve committed to a minimum consumption level but are using less, you may face higher per-unit costs to compensate your supplier.
Given that business energy contracts are binding once signed, selecting the right agreement is crucial. Without this option, you’re left to either attempt renegotiation or wait out your contract, which could extend beyond a year.
Blend and extend contracts offer a solution by allowing you to reduce current costs in exchange for extending your commitment with your existing supplier, typically by an additional year.
Take a look at the following example to see how a blend and extend energy contract can benefit your businesses (the calculations do not include standing charges)!
- The current rate you pay for your supplier is 65p per kWh, with the contract in 6 months left.
- They offer you a blend and extend contract in 24 months, with the rate of 50p per kWh.
- You agree to this contract, which blends the 50p rate into your current charge and extends it for another 24 months.
- As a result, you will be with the supplier for the following 30 months, committing to a fixed unit rate of 50p per kWh.
- If you use 15,000 kWh of electricity over the signed 30-month period, you would pay £12,500 in total.
But what if you could see out the rest of your contract with a lower-rate deal at the end?
As the blend and extend rate is not as cheap as the market rates, could you save more money by locking in this contract? Below is the scenario:
- The current rate you pay for your supplier is 65p per kWh, with the contract in 6 months left.
- After comparing prices, we decide to lock in the rate of 35p per kWh with another supplier
- You will pay 65p per kWh until the current contract ends within 6 months.
- When switching to the new supplier, you will pay 35p per kWh for the next 24 months.
Then, you will pay £3,250 for the final six months of your current deal plus £7,000 for the 24 months of your new contract, totaling £10,250 for 30 months. As you can see, this amount is £2,250 cheaper than the blend and extend offer. In other words, though the rates are higher for the current contract, it is cheaper for the whole period.
Choose The Best Energy Contract with Light Up Energy
Light Up Energy offers expert energy contract consulting services to help you choose the best energy deal for your business. Our seasoned professionals will conduct a comprehensive analysis of your energy bills to ensure accuracy and identify potential savings.
Light Up Energy will validate consumption data, spot overcharges, and pinpoint opportunities for optimization. We leverage our industry knowledge and analytical skills to help you select an energy contract that aligns with your business needs and usage patterns. We aim to maximise your savings while providing clear and actionable insights into your energy consumption. If you want to work with a trusted partner, contact us today to secure the most favourable terms for your business.
FAQs
1. Who should take advantage of blend and extend energy contract?
Blend and extend contracts are often beneficial for commercial and industrial customers. However, too small businesses cannot even qualify to blend their fixed-rate contracts. Meanwhile, it is almost impossible for residential customers to get this option.
On the other hand, larger enterprises and industrial users will greatly benefit from this contract type. Although these contracts cannot be cancelled easily, most energy suppliers want to work with larger commercial and industrial customers for a long time.
2. Can businesses break an energy contract?
Although they can, it is not a wise decision. Firstly, most energy contracts come with hefty early termination fees that charge you much more than what you can save on energy costs. Secondly, your supplier can legally claim breach of contract against you, leaving you paying for legal costs while you must still pay for what you owe under the contract.
3. Will the energy supplier agree to a blend and extend energy contract?
Your energy supplier could refuse to sign a blend and extend contract with you. However, you could negotiate with them for a mutual win-win agreement. Energy suppliers will consider this a chance to increase their customer satisfaction and retention.
4. Is fixed or variable energy better?
They both have their own advantages and disadvantages. On the one hand, the fixed rate depends on the market conditions and is not attractive when wholesale prices get high because suppliers will charge you more. On the other hand, a variable tariff can give you the lowest prices, but it could change to a higher rate in the future.
5. How can businesses switch energy suppliers?
You need to provide your new suppliers with the name of the current supplier and tariff, the energy-paying amount per unit, the annual energy usage, and the postcode. The supplier will contact you and announce the time to implement the contract-switching work. The entire process will take place within five working days.
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