A business energy contract is a legally binding agreement that locks in your electricity or gas rates for a set period, typically one to five years, and governs how you're billed, what happens when your usage changes, and the terms for renewal or exit.

Unlike domestic deals, business contracts carry no price cap protection. The terms you sign are the terms you live with. This guide breaks down contract types, hidden costs, and the practical moves that cut your energy spend.

What is a business energy contract

A business energy contract is a legally binding agreement between your company and an energy supplier. It locks in your electricity or gas rates for a set period, typically one to five years, and spells out how you'll be billed, what happens if your usage changes, and the terms for renewal or exit.

Here's the thing that catches most business owners off guard: there's no price cap. Domestic customers have Ofgem protection. Businesses don't  – Cornwall Insight forecasts bills 70% above pre-crisis levels. The terms you sign are the terms you live with.

Business vs domestic energy contracts

The gap between home and business energy goes beyond price. Domestic deals come with built-in protections. Business contracts come with complexity.

Business contracts also include tolerance clauses (penalties if your usage strays from estimates), pass-through charges (costs that can rise mid-contract), and auto-renewal terms that rarely appear in domestic deals. Suppliers price in the variability of commercial energy use, and that variability shows up in the fine print.

Types of business electricity contracts

The contract type determines how your price is calculated and who carries the risk when the market moves. Each structure fits different situations.

Fixed-rate contracts

Your price per kWh stays locked for the entire contract. Budgeting becomes straightforward because you know what you'll pay regardless of what happens in the wholesale market.

The trade-off? If wholesale prices drop, you won't benefit. Fixed-rate contracts suit businesses that value predictability over potential savings.

Variable-rate contracts

Your price moves with the wholesale market. When prices fall, your bills fall. When prices spike, you absorb the hit.

Variable contracts reward businesses willing to watch the market and adjust operations accordingly. They're not for everyone, but they offer upside that fixed contracts don't.

Deemed and out-of-contract rates

Deemed rates kick in when no active contract exists. You might land on them after moving into new premises or letting your contract expire without renewing.

Deemed rates run 50% higher than negotiated rates. They're the most expensive way to buy energy, and suppliers count on businesses not noticing until the bill arrives.

Power purchase agreements

A power purchase agreement (PPA) is a long-term contract to buy electricity directly from a specific generator, often a wind farm or solar park. PPAs skip the traditional supplier entirely.

PPAs suit larger energy users looking for price stability and verifiable green credentials. The commitment runs longer, but the economics can work in your favour.

Flex and pass-through contracts

Your price tracks the wholesale market, and the supplier passes through costs transparently. You see exactly what the power costs and what the supplier adds on top.

Flex contracts require more attention but reveal where your money actually goes. Larger businesses increasingly prefer them for that visibility.

Key components of a business energy contract

Every contract contains the same building blocks. Understanding each one prevents surprises when the bill lands.

Unit rate and standing charge

The unit rate is what you pay per kWh consumed. The standing charge is a daily fixed fee you pay regardless of usage.

Both matter. A low unit rate paired with a high standing charge can cost more than a higher unit rate with minimal fixed fees. Compare the full picture, not just the headline number.

Contract length and renewal terms

Most contracts run one to five years. Longer terms sometimes offer better rates but lock you in when circumstances change.

Note your end date somewhere you'll actually see it. Missing it can trigger automatic renewal at rates you never agreed to.

Usage estimates and tolerances

Suppliers base contracts on estimated consumption. If your actual usage strays too far from the estimate, penalties apply.

Tolerance bands define how much deviation is allowed. A 10% tolerance means you can use 10% more or less than estimated without consequence. Beyond that, you pay extra.

Pass-through charges

Pass-through charges are non-energy costs the supplier passes to you. They can change during your contract, even if your unit rate is fixed.

• Distribution Use of System (DUoS): Charges for using the local distribution network

• Transmission Network Use of System (TNUoS): Charges for using the national grid, expected to rise 94–120% by April 2026

• Climate Change Levy (CCL): An environmental tax on business energy use

• Renewables Obligation: Costs supporting renewable generation

Contract terms that catch businesses out

Some clauses create unexpected costs or extend your commitment without your input. Spotting them before signing saves money and headaches.

Auto-renewal clauses

Many contracts renew automatically unless you give notice within a specific window, often 30-90 days before expiry. The renewal rate is almost always higher than your original deal.

Miss the window, and you're locked in for another term at prices you didn't choose.

Early termination fees

Leaving a contract before its end date triggers penalties. Suppliers sometimes calculate termination fees as the remaining value of the contract, which can add up fast.

If your circumstances might change, negotiate termination terms before you sign.

Material change provisions

Material change clauses allow suppliers to adjust pricing if market conditions shift significantly. They're often buried deep in the contract.

Look for language around "material adverse change" or "market disruption." If it's there, understand what triggers it and how much your price could move.

Swing and tolerance clauses

If your actual usage deviates from agreed estimates, penalties apply in both directions:

• Under-consumption: You're charged for power the supplier procured but you didn't use

• Over-consumption: Higher rates apply to the excess

Accurate usage data protects you here. Challenge estimates that don't reflect your actual operations.

Hidden costs in business energy contracts

The headline rate rarely reflects what you'll actually pay. Margin hides in several places, and most businesses never see a line item explaining it.

• Broker commissions: Often embedded in the unit rate

• Supplier margin: Added to the wholesale cost before you see a quote

• Third-party charges: Can increase during fixed-rate contracts

• Metering and data costs: Sometimes charged separately

Research into British business energy costs suggests you might be paying 15-20% more than the true cost of power without knowing why. The traditional model wasn't built for transparency.

What happens when your electricity contract ends

When your contract expires without a plan in place, one of two things happens. Neither is good.

Deemed rates kick in automatically. You're moved to expensive out-of-contract pricing, sometimes double what you were paying before.

Rollover contracts renew you at new rates, usually higher, for another fixed term. The notice window to prevent this is often narrow and easy to miss.

Start reviewing options three to six months before expiry. That timeline gives you use and prevents both outcomes.

How to compare business electricity contracts

Comparing contracts means looking beyond the unit rate. A few questions cut through the noise:

• What's the total cost? Factor in standing charges and all fees, not just the rate per kWh

• How flexible is the contract? Review termination clauses, tolerance bands, and renewal terms

• What's the price structure? Match fixed, variable, or pass-through to your risk appetite

• Where does the power come from? Buying through traditional suppliers means paying for traders, risk desks, and sales teams

Some routes to market eliminate those layers entirely. Where power comes from affects what you pay.

Working with an energy broker

Brokers provide market access, comparison, and negotiation expertise. They earn commission, usually from the supplier and embedded in your rate.

Good brokers deliver value through access to better deals and time saved. But the relationship works best when you understand how they're paid.

Questions worth asking:

• How is your commission structured?

• Can you show contracts with transparent pricing?

• Do you offer alternatives to traditional supplier models?

How to reduce costs on your business energy contract

A few practical moves make a real difference:

• Time your renewal: Start comparing options months before the contract ends

• Challenge estimates: Accurate usage data improves quotes

• Match contract structure to operations: Fixed suits stability; flex suits adaptability

• Look beyond traditional suppliers: Direct generator routes eliminate intermediary costs

• Review pass-through exposure: Understand which costs are fixed and which can change

The biggest savings often come from structural changes, not just negotiating harder on the same type of deal.

What transparent energy pricing looks like

True transparency means seeing the wholesale cost separate from the margin separate from third-party charges. It means real-time or half-hourly data on consumption and pricing. It means bills that reflect actual usage, not estimates.

Some providers now offer contracts where businesses see the true cost of power, with technology handling procurement to remove manual trading costs. tem's RED works this way, connecting businesses directly with renewable generators and cutting out the intermediaries that inflate prices.

That's not a better version of the existing model. It's a different one.

Let's talk.

FAQs about business energy contracts

Can I negotiate the terms of a business energy contract?

Yes, most elements are negotiable, including unit rates, contract length, tolerance bands, and termination fees. Larger energy users typically have more use, but even smaller businesses can negotiate through brokers or by comparing multiple offers.

How far in advance should I start looking for a new energy contract?

Start reviewing options at least three to six months before your current contract ends. That timeline gives you room to compare suppliers, negotiate terms, and avoid rolling onto expensive deemed rates.

What is half-hourly metering and which businesses need it?

Half-hourly metering records electricity consumption every 30 minutes and transmits data to your supplier. Businesses using more than 100kW are required to have half-hourly meters, though any business can opt in to access more granular data and potentially better tariffs.

Are renewable energy contracts more expensive than standard business contracts?

Not necessarily. Renewable contracts vary in price depending on structure, and some routes (like power purchase agreements direct with generators) can reduce costs compared to traditional supply while providing green credentials.

What is the difference between an energy supplier and an energy generator?

A generator produces electricity from wind farms, solar parks, gas plants, or other sources. A supplier purchases power and sells it to end customers. Traditional contracts involve multiple intermediaries between generator and business, each adding cost.