A guide to business energy contracts

Renewing/switching your business utility contract is highly important in order to prevent paying out-of-contract rates. This used to be a complex and sometimes risky process due to the strict guidelines suppliers imposed. However, […]

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By george marshall

Renewing/switching your business utility contract is highly important in order to prevent paying out-of-contract rates. This used to be a complex and sometimes risky process due to the strict guidelines suppliers imposed.

However, in April 2015 Ofgem altered the termination process to make it more straightforward. Businesses can now notify suppliers of their termination at any point in the renewal window and give 30 days notice instead of 90. Additionally suppliers are required to provide customers with information regarding their supply and prices, 60 days before their contract ends. This information will allow businesses to compare rates and find the best energy deal for their needs.

Out-of-contract rates

Out-of-contract rates occur when a firm’s utility contract expires – and either an alternative contract hasn’t been agreed or a contract has been terminated – in order to switch supplier – but a delay has prevented the new supply from taking effect on time. As a result, the supplier will still be providing the company’s energy so will charge out-of-contract rates. These rates are significantly more expensive, sometimes more than twice as much, as agreed rates. Switching supplier can often be a lengthy and sometimes complicated process. Therefore, it is vital that you are aware of your contract end date and arrange an alternative in good time.

Deemed contracts

A deemed contract takes effect when a supplier provides energy to a customer, who doesn’t have a contract in place. This situation usually arises when a customer moves into a new premises and consumes energy, thus activating a deemed contract with the energy supplier. Rates on a deemed contact are considerably more expensive, on average 80% more, than agreed rates. For that reason, it is advisable to arrange an energy contract prior to moving into new premises. If you’re paying deemed rates for your business utilities, negotiate a new energy contract as soon as possible. A supplier cannot prevent any business on a deemed contract from switching supplier at anytime. Similarly they cannot expect a business to give them advanced notice.

Fixed contracts

A fixed energy contract offers businesses some financial security as the rates are fixed for a specific period of time – usually between one to five years. This allows businesses to budget for their utilities as they shouldn’t receive any unexpected high bills. A fixed contract protects businesses from price rises in the energy market. However, the downfall is that they won’t benefit from any drop in energy prices. Additionally, fixed rates are often more expensive to cover suppliers in the event of a drastic price rise in the energy market .

Variable & flexible contracts

Variable and flexible contracts are similar as neither offers the same level of security that a fixed contract does. This is because their rates fluctuate in line with market price changes. They do, however, both offer flexibility as you aren’t tied into them for a set period of time. You may leave these contracts at anytime but will need to provide your supplier with 30 days notice. The main difference between flexible and variable contracts is the reason why the customer is placed on them, rather than on a fixed contract. A flexible contract is chosen by the customer, whereas a variable contract is offered by the supplier when they are unable to provide a customer with a fixed contract. This could be due to a variety of reasons, such as;

  • Low estimated annual consumption
  • Low credit score – this can be for various reasons, even simply being a new customer with no credit history.
  • A landlord is responsible for a premises energy supply.

Length of contract

You can fix your energy rates for one to five years. That means you will be tied into a contract with the same supplier for that length of time, which may seem rather daunting. Your supplier may also offer you attractive, lower rates for a one-year contract. Consequently, you may be inclined to only agree to a one-year deal. However, this may not be the most cost effective option for your business. The energy market is extremely volatile and energy prices can be subject to drastic change, rising as much as 15% in a single year. Therefore, if you only enter into a one-year contract, in addition of having to go through the hassle of sourcing another deal in six to 12 months time, prices may rise significantly, leading to more expensive utility bills for your business.

Watt we can do

Watt Utilities is a family-owned utility brokerage located in Manchester. We have a dedicated team of utility specialists, who have helped more than 855,000 businesses pocket in excess of £120 million in savings since 2000. Our team can help guide you through the process of switching/renewing your utility contract and as we work alongside a large number of the UK’s leading suppliers, we can offer current tariffs at the best rates that are perfectly suited to your business’ needs. If you are looking to switch or renew your business energy contract today, click here!

Author – Elizabeth Ireland

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