Guide: business energy contracts explained

Confused by business energy contracts and what their terms entail? Our guide is here to help…

Business energy contracts can be confusing, even at the best of times. With so much to consider – and the fact that energy is a critical resource for many businesses – it’s important to know that you’re on the right contract.

To clear up any issues small businesses might have, we’ve devised a handy guide to help out, touching on everything from choosing the right contract to what you should do when you move into new premises.

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 colleagues discussing contract

Moving into new premises

Moving your business into new premises can be a long process, but with energy contracts to take care of too, there are lots of things to consider. Before you pack up, be sure to read through these common FAQs surrounding moving into your new office or place of business. 

When should a business moving to new premises start to consider the different business energy contract options? 

Ahead of moving into your new premises, it’s important to give your suppliers at least one month’s notice of your planned moving date, and be sure to provide them with your new address so they can send your final bills. That said, you can agree on a business energy contract to start on any date, whether it’s a matter of years, months or even days in advance. 

Can a business energy contract be switched prior to moving into new premises?

Yes. If you are moving premises, you can end your current business energy contract (usually with a minimum of 30 days’ notice) and Speak with alternative suppliers to gain a new quote, should you wish.

new business premises

If no new energy contract is agreed and signed, what will happen when a business moves into new premises? And what are the implications of this?

When you move into new premises, your current energy contract will end from the date you move. Business energy contracts are linked to the supply point; if you do nothing, then your current deal doesn’t automatically transfer over to the new address.

When you move into your new premises without a contract, you’ll be transferred onto a ‘deemed rate’ with the building’s current suppliers. These may be more expensive than rates available under contract, so it’s worth moving off them as soon as possible. 

If a business is moving from current premises, when should the process of terminating the current contract begin?

It’s worth giving your energy provider at least a month’s notice of your planned moving date. When cancelling your contract, you’ll need to leave any existing direct debits as they are, to ensure your final bill is covered. In most cases, energy providers will process your Change of Tenancy notification after your moving date, so that they can bill you accurately.

It’s imperative that you tie up any loose ends to make the moving process a little easier for yourself. For example, on the day of moving, be sure to take a meter reading of both your old and new premises, and give them to your old and new energy suppliers in order to get an accurate final bill. 

Is there anything else a business should be aware of when moving into new premises?

For businesses that are moving into new premises where the energy provision isn’t managed, there are a couple of extra things to consider. 

It is vital to be aware that the supply might have been disconnected due to a previous tenant not paying their bills or cancelling their contract. If this is the case, you might have to pay a reconnection fee or an additional deposit. 

business owner planning

Devising a business energy strategy

A good business energy strategy is hugely important when managing costs. With the price of energy fluctuating on a daily basis and your own usage to consider, energy is a cost that needs to be strategically managed.

The right business energy strategy will seek to reduce risk, consequently improving the business’ resilience and its value. Here are some important things to consider when it’s time to devise your own. 

Which member of a business should be responsible for researching business energy contracts and opportunities? 

It’s unlikely that your business will have its own dedicated procurement specialist, so the person in charge of utilities tends to take on the task of managing business energy contracts.  

They may find it easier to assemble a cross-functional team in order to help with developing a business’ energy strategy, too. 

For businesses without a dedicated energy purchaser, is there an independent body they can approach for impartial advice and guidance?

Put simply, yes. There is a vast array of energy procurement specialists you can use if you’re in need of their services. Broadly speaking, they’ll work with you to better understand your needs, source a range of energy quotes and products from energy suppliers, and help to keep performance in line with strategy.

For businesses who would like to reduce their energy usage is there a recommended solution for business energy management?

Getting your team into the habit of reducing their energy usage can give your green credentials a boost and save money in the process. Things like shutting down computers, not leaving doors and windows open, and using energy-saving lightbulbs can all contribute to effective energy management. 

team discussing strategy

Selecting the correct business energy contract

It can be difficult to know which business energy contract is the right one for your business. However, doing your research can make all the difference when it comes to saving on your bills. Here are a few things to know before you sign on the dotted line. 

Are there any benefits to combining electricity and gas contracts? Or should the options be explored independently? 

Unlike domestic energy, you’ll have to seek separate quotes for gas and electricity, which are then repackaged as dual fuel. Some business energy suppliers will offer a better deal to ensure they get both your gas and electricity contract. 

What are the differences between fixed-rate, pass-through and flexible purchasing contracts? Are there specific types of businesses these contracts benefit more than others?

Fixed rate contracts mean that the rates detailed on the contract represent the price you’ll pay for the full contract term. Typically, they’re offered on a one to three-year contract basis, though some run up to five. Typically, the longer the contract’s term the more you’ll end up paying, but it does offer better protection against future price rises. For cost-conscious businesses, the trade-off for long-term price security may be worth it.

Pass-through rate contracts involve a fixed commodity cost for the contract’s duration, but also allow the supplier to pass on third-party charges such as transportation and distribution charges. If your consumption remains the same, this could mean paying more or less for gas and electricity over the duration of the contract. If the wholesale energy price drops during your contract term, bills would go down accordingly and vice versa. For businesses with an energy strategy that’s taken this into consideration, it could be a risk that’s worth taking.

Rather than agreeing on the contract rate upfront as with fixed contracts, flexible contracts allow businesses to buy their energy at different times within the contract period. Flexible contracts are generally suited to larger businesses as they require on-going monitoring.

Are there any government schemes which UK businesses can take advantage of when choosing an energy contract?

Yes, there are several different government schemes which can help small businesses. These can provide a two-fold benefit, allowing businesses to become more environmentally friendly while also fostering stronger relationships with customers and your supply chain. 

renewable energy engineer

Contracts for Difference

The Contracts for Difference scheme aims to provide clear, predictable and long-term prices for electricity generated from renewables to foster investment in new, clean generation. 

Feed in Tariff

The Feed in Tariff takes pressure and reliance off the main generating grid by allowing customers to reward, compensate and benefit from generating their own energy. 

The value collected through electricity is recycled by energy suppliers, and used to reward businesses with what is known as ‘embedded generation’.

Renewable Heat Incentive

Designed to increase the use of renewable heat technologies amongst businesses, it offers payments to businesses for each kWh of heat generated using low-carbon technologies.

For more information, be sure to read our guide to the various business energy environmental schemes. 

Are there any finer details of a business energy contract that professionals need to look out for?

While an energy contract can increase savings and provide a better service, making the right decision is important, so there are a few things to be aware of before committing.

For a start, you can’t switch mid-contract so getting it right first time is essential. If you want to switch, you’ll have to wait for the contract to end before opting for others.

Additionally, the cheapest energy deal doesn’t always mean it’ll be the best. A low price might be attractive, but things like service and reliability may be more important. Make sure you do your research when finding a supplier and assess what is most important for your business. 

Be sure to check the renewal period, too. This is one of the first things you should do when a new business contract starts. Make a note of the renewal period; if you end up missing this window, your supply could be rolled on to expensive out-of-contract rates.

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