A simple guide to energy contracts for small businesses

Navigating energy contracts can feel like trekking through a dense forest without a map. Hidden fees, confusing terms, and little clarity on what you’re paying for.

If you’re running a small business, chances are you don’t have hours to spare deciphering energy jargon or chasing quotes. 

Our guide is here to change that. We’re breaking down the different types of energy contracts, what to look out for, and how small businesses can cut out the middleman by accessing affordable, renewable energy directly. 

What is an energy contract, in simple terms?

In short, an energy contract is an agreement between your business and a supplier. It sets out how much you’ll pay for your electricity and gas, and for how long. 

Seems straightforward, but not all contracts are created equal. 

Understanding what you’re signing up for can make the difference between cost certainty and bill shock. 

Types of energy contracts explained

Let’s look at the common types of business energy contracts: 

1) Fixed-rate energy contracts  

This is the most common type for small businesses. The unit price you pay for energy stays the same for the length of your contract, usually one to three years.

Good for: Budgeting and stability. 

Watch out for: Higher rates during market drops, as you’re locked in. 

2) Variable-rate contracts

Your unit price moves with the market. If wholesale prices drop, you could begin to save on energy costs. If they rise, you’ll start to pay more. 

Good for: Flexibility. 

Watch out for: Unpredictable bills, which can be hard on your business’s cash flow. 

3) Out-of-contract rates

If you haven’t agreed to a new deal or your contract ends and you don’t switch, you’ll be moved to an out-of-contract rate. 

An out-of-contractrate is the “default” or “standard” tariff that an energy supplier will begin to charge if energy is being used but a contract hasn’t been formally signed. 

Good for: No one. 

Watch out for: Paying way more than you need to. Always renegotiate or switch before your contract ends. 

4) Pass-through contracts

These split the energy cost from “industry non-power costs” like distribution and maintenance. You pay a fixed rate for the energy itself, but the extra charges can change. 

Good for: Larger businesses with energy expertise. 

Watch out for: Surprise charges if you don’t know what to expect. 

So, which energy contract is best for small businesses?

In simple terms, this depends on how you and your business use its energy. 

If stability is your top priority, a fixed-rate contract gives peace of mind. If you’re flexible and happy to test the waters of the energy market, a variable-rate might offer savings (but also the risk of higher bills). 

For many small businesses, a fixed-rate contract tends to be the safest bet. It means you can plan without any nasty surprises along the way. However, there’s a better option starting to emerge, one that sidesteps traditional energy suppliers altogether. 

The problem with energy contracts for small businesses

The current energy system favours “big” energy suppliers, not small businesses. 

Let’s look at this further… 

Prices are marked up, energy price cap limits continue to increase, contracts are often confusing, and transparency is lacking. Small businesses don’t always have the time or negotiating power to shop around or understand what they’re paying for. 

Choosing the right energy contract: key things to consider

Before you sign anything, as a small business owner, ask yourself: 

• How long is the contract?

  Longer terms can offer lower prices, but you lose flexibility.

• Is there an exit fee? 

  Some contracts charge you for switching early.

• How does this supplier handle “non-power costs”? 

  These can add up; make sure they’re explained clearly. For further context, “non-power costs” are compulsory charges that big energy suppliers charge to cover their cost of delivering energy to their customers.

• Do I know where my energy comes from? 

  Most suppliers won’t tell you. Even if you're on a 'green' tariff, your energy may be offset with renewable certificates, but these don’t reveal the complete story of where your energy is sourced from.

If your small business has seasonal peaks, like a retailer with a Christmas rush, ask about flexible billing that reflects those cycles. 

A better alternative: going RED  

tem’s RED flips the traditional model. Instead of buying from the usual big energy suppliers, you can buy renewable power directly from the generators who produce it. 

Think of it like going to a local farmer’s market rather than a big-box supermarket. 

You get low-carbon electron energy at a lower cost because you cut out the middlemen and markups. 

At tem, our RED platform gives you a direct line to renewable generators across the UK. That means your money supports real people and real communities, people who produce wind, solar, or hydro energy locally. 

It’s energy just as it should be: fair, transparent, and built for the future.  

Why small businesses are switching to tem

Here’s what small business owners tell us matters most: 

• Lower bills: No extra layers of cost from wholesale market middlemen.

• Transparency: See exactly what portion of your energy is covered by UK-based renewable generators.

• Energy you can rely on: Megawatts are matched with renewable generation in our network, ensuring uninterrupted power at the best price.

• Community: You’re supporting UK-based generators, not global supply chains. 

In a world of rising costs, getting access to fairly priced energy shouldn't be out of reach for small businesses, and with RED, it isn’t.

Let’s simplify energy contracts 

Choosing the right energy contract for your business shouldn’t feel like solving a puzzle. At tem, we believe small businesses deserve clarity, control, and access to renewable, affordable energy.

We’ve built RED for businesses like yours because the energy system should work for everyone, not just the big energy suppliers. 

Want to cut through the noise and find the right energy contract? 

We’re here to help. Let’s explore how we can lower your energy costs, together.