Making Sense of Different Energy Contract Types

One of the best ways to use a business energy comparison in the UK is by looking at different types of energy contracts. Your energy supplier contract entails facts and data that you need to understand.

When you are aware of the different energy contracts, you will be able to set your rules in your business straight. You will also have clear goals for your business. 

Energy contracts are agreements between a customer and an energy company in which the customer agrees to pay the company a certain amount over a certain period. The company, in exchange, provides the customer with a certain amount of electricity or gas.

Types of Energy Contracts in The UK

The UK has a lot of options when it comes to energy contracts. However, there are different incentives and goals that each contract has, and they might not be beneficial for your business. That’s why it’s essential to understand your options before signing up for a contract.

If you want to know more about these contracts, read further below.

Deemed and out-of-contract

Deemed and out-of-contract are two types of energy contracts in the UK. Both have advantages and disadvantages, and it’s important to know what they are before you sign a contract with an energy provider.

Deemed is a type of fixed-price energy agreement. It’s called “deemed” because you pay a fixed price for the power and gas you use based on your actual usage.

It is a contract where the energy supplier estimates your usage based on past use over 12 months rather than waiting until your meter has been read. This can be useful if you’re a new customer or if you haven’t had an energy meter installed yet.

The way it works is that your supplier charges you a cost per kilowatt hour (kWh) for electricity or gas and then adds an extra amount onto that to cover their costs. So if you use a lot of energy in one year, you’ll get charged more than someone who uses less.

For example, because you’ve just moved into a property. However, deemed contracts can sometimes result in higher bills than those with meters read regularly.

An out-of-contract energy contract is a contract with your energy company that ends at the end of its term. You must either sign a new contract with your energy company and switch to another provider or find somewhere else to get your gas and electricity.

The energy supplier will cut off your gas and electricity supply if you don’t do this.

You can also get an out-of-contract energy contract if you leave a fixed-term contract early.

Fixed

Fixed contracts are the most common energy contract type in the UK. If you sign up for a fixed contract, you agree to pay one price per unit of energy for a set period, usually one year. 

The supplier will charge you the price per unit of energy at the beginning of your contract. After that, it does not change for the duration of your agreement.

The advantage of signing up for a fixed contract is that you’ll always know your monthly bill, no matter how much energy you use or when you use it. 

This can help make budgeting more manageable and predictable, especially if you have employees who need to know how much they’ll pay each month.

The disadvantage is that if prices rise during your fixed-contract period, so do your bills, and vice versa. 

Fixed contracts are also typically more expensive than other types of agreements because there’s no competition between providers. Instead, you’re guaranteed to get the highest rate offered by one company.

Variable

Variable energy contracts are a tariff that allows you to pay for your energy based on the amount you use.

It’s a relatively simple concept. When your business uses less electricity, you pay less. When you need more power, you will pay more.

This means that the energy price can fluctuate throughout the year, depending on how much electricity and gas you use. However, if you can manage your consumption well, these contracts can suit those who want to save money on their bills.

It’s all based on “baseload” usage, the amount of electricity your business needs to keep running.

So if you sign up for a variable contract, your supplier will monitor your baseload usage and provide you with an estimate of how much it’ll cost each month.

That way, if there’s an emergency at the office and everyone has to work late at once or a spike in demand for products, like during the holiday season, you won’t get stuck paying for more than your business uses.

However, they aren’t suitable for everyone if there’s a prolonged period where you consume less than usual. For example, when you’re out and about more often during the summer months, your bill will likely increase when it comes time to pay up.

Rollover

A rollover contract is a form of business energy that allows you to pay for electricity monthly. It’s essentially an energy contract enabling you to pay for your electricity at the end of each month and move forward with your business.

This may not be your option if you want more stability in your business energy. However, if you’re looking for something that’s easy to understand and doesn’t require much management, this could be a great option.

Rollover contracts are often part of bundle deals or other bundled services like communication services like phone plans or internet service plans. 

It’s important to remember that these types of bundles often come with long-term contracts, so make sure you know what kind of deal you’re getting into before signing up.

Final Thoughts

The energy industry is a complex one, with many different players and a variety of products. It can be hard to navigate, so it’s essential to understand the basics.

When comparing business energy, there are a lot of terms and concepts that can be confusing. One of the most important things to understand is what a contract type is and how it differs from each other.

A contract type is the overall structure of your electricity agreement, including the length of the contract, when it begins and ends, what it covers, and other details like how often your rate will change over time.