Business energy contracts explained: types, tariffs, terms and notice

How business energy contracts differ from household ones

Business energy is bought differently from household energy, and the differences matter before you sign:

• No price cap. The energy price cap doesn't cover business energy contracts, so your prices are whatever you and your supplier agree. Our guide to the business energy price cap explains what protects businesses instead.
• No cooling-off period. Ofgem says there's no cooling-off period once you agree a business contract, and that a contract agreed over the phone is binding.
• Contracts can run for years. Ofgem says an agreed contract may last for multiple years, and may have a termination fee if you want to leave early.
• Different taxes. Most businesses pay VAT at the standard rate of 20%, more than homes pay, and most also pay the Climate Change Levy, which homes don't pay at all. See our guides to VAT on business energy and the Climate Change Levy.
• Fewer automatic protections. Ofgem's rules on fair treatment, the Standards of Conduct, have applied to businesses of all sizes since 1 July 2024. Microbusinesses get extra protections on top, and small businesses get some of them.

The rates in your contract are what decide your business electricity rates and business gas prices, so it's worth knowing which type you're agreeing to.

The main types of business energy contract

Our guide to deemed and out-of-contract rates explains the last two in more detail.

Fixed or variable: which suits your business?

There's no single right answer, and it depends on how much certainty your business needs.

• A fixed contract gives you known unit rates and standing charges for the whole term (unless some costs are passed through, see below), which makes budgeting easier. The trade-off is that you're tied in: if prices fall during the term, you'll usually stay on the rates you agreed, and leaving early may cost you a fee.
• A variable contract means your supplier can change your prices during the contract, for example when wholesale prices change, so they can fall as well as rise. You have less certainty, so check how much notice your supplier gives before it changes your prices, and whether there's a fee to leave.

Whichever you choose, compare the whole cost, not just the unit rate. A lower unit rate with a higher standing charge can cost a small site more over a year, and the opposite can be true for a site that uses a lot of energy.

Fully fixed or pass-through?

A fixed contract doesn't always fix everything. Your energy price is made up of the cost of the energy itself and other costs, such as the charges for using the networks.

• On a fully fixed contract, your unit rates and standing charges are fixed for the length of the contract.
• On a pass-through contract, some of those other costs are passed on to you at cost. Ofgem describes it as the supplier charging the customer whatever it's billed for the site, for example by the network company. So your bill can change during the contract when those costs change, for example when network charges are updated.

On a pass-through contract, some costs aren't in the headline rates, which can make quotes harder to compare. When you compare quotes, check which costs each one fixes. Our guide to business standing charges covers how network costs reach your bill.

Business energy tariffs: how prices are set

Whichever contract type you choose, a business energy tariff is usually made up of two prices:

• a unit rate, in pence per kWh, for each unit of energy you use;
• a standing charge, in pence per day, that you pay however much you use.

Ofgem says business suppliers can split their costs between unit rates and standing charges as they see fit, so two tariffs with similar totals can be built very differently. Some electricity meters record day and night use separately, each with its own unit rate. Larger sites with half-hourly meters can also have charges that depend on when they use electricity and on their agreed capacity. Our business energy prices page shows what businesses of each size pay per kWh.

Green and renewable tariffs

Some suppliers sell tariffs described as green or renewable. Suppliers can back them with certificates called REGOs. Ofgem issues one REGO for each megawatt hour of eligible renewable electricity, and suppliers use them to show customers how much of their electricity comes from renewable sources.

If a green tariff matters to your business, ask the supplier what backs it and check its fuel mix, which licensed electricity suppliers must publish and give to their customers.

What to check before you sign

Ofgem advises knowing the contract type, how long it lasts, any fees, your protections, and whether broker fees are included in the price. In practice, check:

• the start and end dates, and whether the contract starts when your current one ends;
• the unit rates and standing charges, and which of them are fixed;
• what isn't fixed, if it's a pass-through contract;
• the notice period, and how and when you must give notice to avoid a rollover;
• any termination fee for leaving early;
• broker fees. For contracts signed since 1 October 2024, suppliers must show clearly in the main terms any broker fees they add to your bill, and give you details if you ask. Fees you pay a broker directly won't appear there, so ask the broker;
• any security deposit your supplier asks for;
• what happens at the end, whether it rolls over, moves to out-of-contract rates or ends.

If you're agreeing on a call, ask for the terms in writing before you say yes, because a phone agreement is binding.

Security deposits and credit checks

Suppliers may ask a business for a security deposit when they decide it carries some credit risk. Ofgem has published a best practice guide for suppliers, which says:

• deposits should match the credit risk the supplier faces;
• suppliers should be clear about the process they follow;
• businesses should be able to ask for a partial or full refund if their creditworthiness improves significantly;
• any deposit not used to pay the final bill should be repaid promptly once that bill is settled.

The guide is voluntary, but Ofgem encourages suppliers to follow it as closely as possible.

What happens when your contract ends

What happens depends on your contract and the size of your business.

• If you're a microbusiness, your supplier must send you renewal information about 60 days before your fixed term ends. If you don't agree a new deal or switch, a rollover can't be for more than 12 months, and you can then leave at any time without notice or a termination fee. Our microbusiness energy rules guide explains the full rules.
• If you're not a microbusiness, your contract's own terms decide whether it rolls over or moves to out-of-contract rates, and what notice you need to give.

The safest approach is to start looking well before your end date. You can usually agree a new contract with your current supplier, or switch business energy supplier, and our free check can compare business energy prices for you first.

Can you leave a business energy contract early?

Usually not without a cost. A fixed contract normally runs to its end date, and leaving early may mean paying a termination fee. Deemed, out-of-contract and rolled-over microbusiness contracts are different: you can usually leave them at any time. Our guide to leaving a business energy contract early explains the options.

Buying through a broker or comparison site

You can arrange a business energy contract yourself, or through a broker, consultant or price comparison site. Ofgem says to check which suppliers a comparison site covers, and whether it receives commission from suppliers. Most brokers are paid commission by the supplier you choose. If you're a micro or small business and a supplier pays your broker, the broker must belong to an approved dispute resolution scheme. Our guide to energy brokers covers what to ask.

A change coming in 2027: smart meter terms

From 1 September 2027, new fixed-term contracts for small and medium-sized business sites must include a term that you have, or agree to have, a smart or advanced meter. Contracts agreed before then aren't affected, even if they start later. Our guide to smart meters for business explains what that means for you.

If something goes wrong

Contact your supplier first, and make a formal complaint if it isn't resolved. If it's still not sorted after eight weeks, or sooner if you get a deadlock letter, micro and small businesses can take it to the Energy Ombudsman for free. The government has decided to cut the eight weeks to six, but hasn't set a date yet. Micro and small businesses can also get help with their energy contracts from Citizens Advice.