When it comes to business energy, there are multiple tariff types available, and these can vary from one lender to the next. Similarly to mortgage interest rates you can typically choose a fixed or variable rate tariff, but these tend to be bespoke based on your industry type and the size of your business.
We look at how fixed-rate commercial energy tariffs compare to variable tariffs, and how to decide which option is best for your business.
How fixed-rate energy tariffs compare to variable
Comparing business electricity and gas tariffs can be complex because there are no commercial dual fuel tariffs. This means that if you have both gas and electricity supplies to your commercial premises’ you’ll need separate quotes for each.
It can be beneficial to enrol the help of a business energy consultant, as they can take a lot of the hard work out of this and provide you with 2 simple choices. However, it’s important to understand the tariff types before you can choose which type(s) are best for your business.
The average prices per kWh for gas and electricity and the standing charges vary based on the size of your business, as well as a range of other factors, such as your industry, your credit score and the contract type and length.
The main business energy tariffs can be split into:
Fixed-rate tariff
If you opt for this type of tariff, both your unit rates of energy and the daily standing charges stay the same for the fixed-rate period, much like with a fixed-rate mortgage. Of course your actual bills will vary depending on usage.
Fixed-rate tariff contracts are often offered for 12 months up to around 5 years. The fixed rate is based on wholesale energy costs at the time, but you are protected even if they rise during your contract period, your rate remains the same.
Retail outlets and offices, as well as other businesses that use a similar amount of power each day all year round will usually benefit from the certainty that comes from a fixed tariff. The downside is that if wholesale energy prices fall whilst you’re tied to a fixed rate tariff, you won’t benefit.
Variable rate tariff
With variable rate energy tariffs (often known as a standard tariff) both the unit rate and the standing charges can fluctuate every month (or day in some cases), depending on global wholesale energy prices.
However, as you’re not typically tied into a contract, you can switch tariffs or even suppliers at short notice. While there is much less certainty with variable tariffs, they allow you to take advantage of any global energy price reductions straight away. You also benefit from avoiding cancellation fees. This type of tariff might be beneficial to a business that is scaling up quickly and has rising energy usage.
Deemed rates
A Deemed tariff is an off-contract rate, or the supplier’s standard rate. You’re often on this type of tariff if you’ve just taken over a business premises and not yet signed a new contract, or if your previous contract has ended.
Unit rates and daily standing charges on a deemed rate are variable, but are also typically higher than any of the on-contract tariff types.
Other business energy tariff types
In addition to fixed and variable rate commercial energy tariffs, many suppliers now also provide a range of additional tariff types which offer greater benefits to certain types of business:
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Green tariffs: For those businesses with strong sustainability goals, perhaps chasing the net-zero status, many providers now offer renewable energy options and green tariffs
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Multi-site contracts: If your businesses operates across multiple sites, some providers will offer a single multisite energy contract
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Blend and Extend: For businesses who are reluctant to change supplier, rather than falling onto deemed rates at the end of your contract, some suppliers offer a blend and extend option which extends an existing contract on a rate that sits between your current contract rate and the current market rates for that tariff type
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Flex bulk-buy energy: Large businesses with high energy consumption can opt to buy a set amount of energy in advance, rather than choosing a tariff. This gives you access to current wholesale rates until you hit that level of consumption
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Pass through rates: For mid-size businesses with slightly more appetite for risk, pass through rates split your business energy bill between fixed wholesale rates and other charges like National Grid and Transmission Network Use of System
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Time-of-use tariff: For businesses that use most of their energy at a specific time of day, such as factories working overnight, this type of tariff allows you to make use of off-peak energy prices. This can save substantial costs compared to peak gas and electricity prices
Why choose one tariff type over another?
As you can see from the different tariff types described above, the right tariff for your business will very much depend on the size of your business, your industry, how much energy you use and when you use it. Of course, some businesses will also be looking to meet green energy targets, and not all tariffs offer renewable or ‘clean’ energy options.
Each tariff type has benefits and drawbacks, depending on your need. The below tables shows the pros and cons of choosing a fixed-rate vs. a variable rate commercial energy tariff:
Fixed-Rate Commercial Energy Tariff
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Pros |
Cons |
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Budget certainty: Allows for precise OPEX (Operating Expense) forecasting; your unit rate is locked for 1–5 years |
Risk premium: Suppliers often include a buffer in the price to protect themselves against market spikes, making the initial rate higher |
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Margin protection: Shields your Gross Profit Margins from sudden geopolitical events or supply chain shocks that cause energy spikes |
Inflexible contracts: Most fixed business deals are legally binding. Breaking them early results in high Early Termination Fees (ETFs) or paying out the remaining contract value |
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Administrative ease: doesn't require a dedicated procurement team to monitor the Intercontinental Exchange (ICE) daily |
Locked-in: If wholesale prices drop significantly your business continues to pay the higher contracted rate |
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Inflation protection: Protects against the rising costs of Renewable Obligation (RO) and other levies if you secure an all-inclusive fixed deal. |
Volume tolerance: Many fixed contracts penalise you if your actual usage deviates significantly (usually +/- 10-20%) from your estimated annual consumption |
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Pass through: Many modern fixed rates are pass through rates, this means your energy unit rate is locked, but the government levies and grid delivery charges can still fluctuate |
Variable / Flexible Commercial Energy Tariff
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Pros |
Cons |
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Market fluidity: If the wholesale market dips, your business sees an immediate reduction in cost without having to renegotiate. |
Cash flow volatility: Extreme price spikes can cause sudden, unbudgeted drains on cash flow, which can be catastrophic for SMEs with tight liquidity |
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Operational agility: Generally requires only 30 to 90 days' notice to terminate. Ideal if you are planning to move premises, sell the business, or downsize |
High deemed rates: If you fall onto a Standard Variable Tariff because a fixed deal ended, you are often paying the highest possible rates (sometimes 2x the market average) |
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No long-term debt: Since there is no multi-year commitment, you don't carry the liability of a long-term contract on your balance sheet. |
Non-commodity exposure: You are fully exposed to annual hikes in TNUoS (Transmission) and DUoS (Distribution) charges |
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Lower initial rates: Sometimes available at a lower entry point than fixed deals because the supplier isn't taking on the long-term price risk |
Administrative burden: Requires constant monitoring of energy bills and market trends to ensure the variable rate hasn't crept into unaffordable territory |
If you generate electricity at your business, it’s worth asking your supplier about a tariff that supports the Smart Export Guarantee. If you’re eligible for the scheme, you can make money by selling power back to the Grid.
How an energy adviser can help you get the right contract
An energy adviser helps businesses secure the right energy contract usually by providing a full energy audit for your business. Once complete they are able to utilise their industry expertise to look at your consumption and individual business targets to search the entire market for a tariff that suits you. They provide:
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Tailored quotes: By analysing your specific business needs and consumption level they can recommend the best contract and tariff type for your business
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Expert negotiation: Energy advisers have access to the full market, which can include exclusive rates and products that they negotiate directly for your business. These rates won’t typically be available on the open market
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Meeting sustainability targets: If renewable options are important to your business ethics, or you’re competing to meet net-zero targets, energy advisers with experience in green energy can help focus your choice on those suppliers operating in this commodity
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Ongoing administrative support: Having a dedicated energy consultant can free up demands on your staff to monitor consumption, contract renewals and long-term carbon reduction efforts for your business
Get a free energy health check for your business
Can you switch from one tariff type to another?
Yes, you can switch your business energy tariff type, but when you can do so will depend on your current contract type:
1. Fixed-term contract to another tariff - You’ll need to be in the renewal window to switch from a fixed-term energy tariff. This is usually the last 30-90 days of the contract, and you’ll pay an early exit fee to switch both suppliers and/or tariffs before this window. However, some providers allow loyal business customers to move between different fixed deals penalty-free if the new contract is longer
2. Variable rate to a fixed tariff - These usually have a notice period of around 30 days. Once notice is given you can move to any other tariff or supplier, usually without exit fees
3. Deemed rate (Out-of-contract) to another tariff - There are usually no exit fees for leaving these high-rate tariffs at any time
Before you look at switching your business energy tariff it's important to have a good understanding of your consumption and what you're currently paying, to enable a proper comparison of different tariff types. Our free business energy calculator tool below can help you to compare different rates depending on your business size, industry and usage:
What to do if you think your energy contract was missold
If you suspect your business energy contract was mis-sold, for example if there were hidden commission fees, long-term tie-ins, or false promises, it’s important to gather all documentation (contract, call recordings, emails, and invoices) highlighting these discrepancies.
Your first step is to formally complain in writing to your supplier or broker.
If you don’t get a suitable resolution or you receive a ‘deadlock letter,’ you can take the case to the Energy Ombudsman for a free, independent resolution. If the mis-selling resulted in significant financial losses for your business you may also wish to seek legal professionals who can help you recover funds.
Why choose Money Helpdesk for your business energy?
Whether you’re a microbusiness owner or the CEO of a large scale enterprise, it’s unlikely you’ll have the time to search through multiple energy providers to gather tailored commercial energy quotes.
At Money Helpdesk our specialist business energy consultants can provide a detailed energy audit, compare tariffs to find you the most suitable for your business, and even support you throughout the procurement process.
If sustainability targets are important to your business, we offer a specialist energy efficiency consulting service, allowing us to recommend green initiatives and monitor your business’ carbon footprint on your behalf.
Get started here to compare your current business energy prices or explore switching suppliers to reduce your company’s energy costs
FAQs
Yes, our green energy consultants can help you find the right sustainable energy providers for both your commercial electricity and gas needs.
