Energy contracts are essential for controlling business expenses and ensuring sustainability. Yet, navigating the complexities of energy procurement can be challenging, especially when you need to compare energy and gas suppliers with the diverse range of contracts available to meet different business needs.
Each type comes with advantages and considerations, from fixed-term contracts to flexible variable ones. The final choice will depend on whether the contract type has the proper features to align with your requirements.
This article will help you understand the different types of business energy contracts and how they work.
In addition, can I get out of my energy contract? This is a common question that is often asked by business owners. Take a look at the answer before signing your energy contract!
What Are Energy Contracts?
An energy contract is an agreement between an energy provider and a consumer to outline the terms of energy supplies at an agreed rate. The energy sources could be renewable options like wind and solar, as well as traditional sources such as natural gas and coal. The customer could be an individual, business, organisation, or government entity.
For businesses and organisations, an energy contract is essential for their smooth operations, ensuring a reliable energy supply. An energy contract could help them save costs and avoid disputes with utility companies.
The appropriate energy management contract can assist in optimising your energy consumption, managing expenses more effectively, and aligning your energy use with your business objectives and values.
Types of Business Energy Contracts
Remember to review all contract terms carefully, especially any conditions that affect your rates or contract duration.
1. Deemed contract
Can I cancel an energy contract before it starts? Deemed contracts can address this need. This type of contract applies when you begin using energy on new business premises before formally agreeing to a contract with a supplier. It will come into effect if your previous contract expires without specifying what happens afterwards.
2. Out-of-contract
These rates are applied when your contract explicitly states what will occur after it expires. It’s important to note that out-of-contract rates differ from deemed contracts.
3. Fixed-rate contract
A fixed-rate contract, often determined after obtaining a business gas quote, sets a fixed price for each unit of energy throughout the contract duration. Your price will not increase or decrease despite fluctuations in the market.
4. Variable contract
Under a variable contract, your energy costs fluctuate according to market price changes. Therefore, your payments can increase or decrease sometimes over the contract duration.
5. Rollover or evergreen contract
When your current energy contract expires, if your supplier does not hear any changes from you, they will automatically renew the contract under the same terms and conditions. This type of contract is called a roller or evergreen contract. Rollover contracts are limited to a maximum of 12 months for microbusinesses.
If you prefer not to extend your current contract under a rollover or evergreen contract, it’s important to inform your supplier before the contract ends.
6. Flexible contract
A flexible energy contract allows businesses to customise their energy procurement strategy. It typically offers options to choose contract duration, purchase energy in blocks or full, fix or vary third-party costs, select support levels, and access tailored reporting tools.
This type of contract provides greater control over energy costs and allows companies to adapt their strategy based on market conditions and business requirements.
Source: Freepik
Energy Contract Problems with Your Energy Broker
If you are dissatisfied with your business energy broker‘s service, try to resolve the issue directly with them. Brokers must be registered with an alternative dispute resolution scheme with micro businesses.
Otherwise, the next step is to escalate your complaint to either the Ombudsman Services or the Utilities Intermediaries Association (UIA). It will depend on which scheme your broker is registered with. These independent bodies offer impartial resolutions to disputes.
Energy Contract Problems with Your Supplier
If problems arise with your energy contracts, the steps you should take will depend on the size of your business.
1. Microbusinesses
Micro businesses should contact their energy supplier and broker directly and try to resolve the problem. If this attempt is not successful, they can escalate the matter to the Energy Ombudsman, an independent body providing impartial dispute resolution services for small businesses.
2. Small to medium enterprises or large businesses
Similarly, small to medium enterprises and large businesses should start by communicating directly with their supplier to resolve the issues. However, unlike micro businesses, if this effort cannot lead to an agreement, these businesses do not have access to the Energy Ombudsman’s services. Instead, they need to take legal action through the civil courts as a last resort.
Can I Get Out of a Fixed Term Energy Contract?
Yes, you can. It’s necessary to sign a contract when switching to a new energy provider. This agreement says what they will do for you and how much you will pay. Before switching to another company, you must end this agreement first. Consider the following situations.
1. Ending a standard variable rate energy contract
Can I exit a business energy contract? Standard variable rate tariffs offer flexibility, allowing you to end the contract at any time without exit fees.
You have the flexibility to end the contract at any time without exit fees. To cancel the contract, you just need to simply notify your current energy supplier in writing.
In addition, this arrangement allows you to switch providers or negotiate new terms more freely. They will adapt to your changing energy needs or take advantage of better offers in the market.
2. Ending a fixed-rate energy contract
This type of contract binds you to an energy supplier for a specific time, normally 12, 24, or 36 months. If you decide to terminate this fixed-rate contract before it expires, there is usually an early exit penalty. This fee is commonly set at approximately £30 for each fuel type (electricity or gas).
3. Ending an energy contract while in debt
Can I cancel my energy contract? When you owe money to your current provider, you cannot cancel the energy contract. With an outstanding balance of over 28 days, the provider has the right to prevent you from terminating your contract. You cannot move to a different supplier until you clear your debt.
Source: Freepik
What Will Happen if You Don’t Switch or Sign a New Fixed-term Deal?
To know exactly what happens, it is best to review your renewal letter that shows the consequences of inaction. This letter outlines what occurs if you don’t respond to their offer, negotiate new terms, or initiate a switch.
For micro businesses, your supplier may extend your contract for up to one year. Rates might increase, or terms may change. For larger businesses, check your contract’s renewal clauses, as extensions may exceed one year.
It’s advisable to plan ahead for your contract’s end. If it expires without action, your current supplier will continue providing energy. However, you may be placed on a ‘deemed’ or ‘out of contract’ rate, with a potentially much higher rate than your current rate.
Factors to Consider When Renewing an Energy Contract
When you decide to renew your energy contract, consider the below factors before taking action to make sure the decision gets right.
1. Market Conditions
Ensure you remain informed about current energy market trends and forecasts, such as those influencing a business electricity quote, along with geopolitical events, supply and demand dynamics, and regulatory changes. These factors can significantly impact energy prices. Understanding these conditions can help you determine whether it’s a favourable time to lock in a new contract or if waiting might be beneficial.
2. Seasonal Trends
As energy demand fluctuates seasonally, energy prices also change accordingly. For instance, during summer months, air conditioning use increases, making electricity prices spike. Meanwhile, natural gas prices often rise in winter. Consider these patterns when timing your contract renewal and choosing contract length.
3. Contract Timing
Energy contracts are time-bound, with specific start and end dates and a defined duration of months. Usually, suppliers initiate new contracts within a given month based on a customer’s metre reading date. Since metre reading dates vary among customers, pinpointing the precise start and end of your contract can be complex.
You need to be careful when signing a renewal with a premature start date, as this could result in substantial early termination fees from your current supplier. Also, overlapping contracts or gaps in service should be avoided, which would result in unnecessary costs or complications.
4. Fixed vs. Variable Rates
You must decide between the stability of fixed rates or the potential savings of variable rates. Fixed rates offer predictable costs but may be higher initially. Variable rates can lead to savings during low-price periods but expose you to price spikes. Your choice should depend on your risk tolerance and budget flexibility.
Source: Freepik
When is The Best Time to Renew Energy Contracts
The ideal time to renew your energy contracts is typically every 12-18 months or as your current deal approaches its end. This practice helps avoid being automatically moved to a potentially expensive standard variable tariff.
Switching around October, before winter, can be advantageous as energy usage tends to increase during colder months.
Monitor your contract’s expiration date to avoid early exit fees. While you can do this yourself, suppliers are required to notify you in writing. This notification period is an opportune time to explore new options.
Contract Termination Checklist
To terminate your contract with your current energy supplier, it’s important to follow a structured process. Consider the following contract termination checklist below:
For all customers:
- Identify your fixed period expiration date
- Determine if exit fees apply to your situation
- Formally notify your supplier in writing about your decision to cancel
Additional steps for business customers:
- Be alert for your renewal letter
- Confirm the exact date your fixed period ends
- Provide your supplier with the required notice of cancellation
Optimising Your Business Energy Contracts with Light Up Energy
At Light Up Energy, we go beyond the traditional approach to energy consultancy. Instead of limiting our interaction to contract renewals, we foster long-term partnerships with our clients. Our comprehensive services cover every aspect of your energy needs, from managing connections and billing to metering and consumption optimization.
Our experienced business energy consultants, supported by our energy advisory service in the UK, will work to prevent unnecessary expenses and effectively manage your energy usage. We further address your concerns about hardware, carbon emissions, and renewable energy solutions.
Are you seeking a committed partner in your business’s energy management journey to transform your energy contracts? Contact us today!
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