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Choosing a business energy contract is really a decision about how much price certainty you want, and how much risk you are willing to carry. Pick the wrong type and you can end up locked into a peak, exposed to a volatile market, or worst of all, sitting on an expensive default rate. This guide explains each contract type in plain terms and helps you match one to your business.
In short. Most businesses want a fixed term contract for certainty. Variable and flexible deals suit larger users who can manage market risk. Deemed and out of contract rates are default rates to avoid, because they are the most expensive on the market.
A fixed term contract locks your unit rate for a set period, usually one to five years. Your standing charge and unit rate stay the same regardless of what the wholesale market does, which makes budgeting predictable and protects you if prices rise during the term.
This is the right choice for most small and medium businesses. The main consideration is timing. If you lock in when prices are high, you are tied to that rate for the term, so when you fix matters as much as the fact that you fixed. It is also why you should never let a fixed deal drift to its end without lining up the next one.
A variable contract lets your rate move with the wholesale market, up or down. You benefit if prices fall, but you carry the risk if they rise. For most small businesses the uncertainty is not worth it, because a single sharp rise can blow a budget. It can suit a firm that genuinely expects prices to drop and wants the flexibility to fix later, but that is a bet, not a plan.
Flexible contracts, sometimes called pass through, let larger users buy their energy in tranches across the year and pass network and policy costs through at cost rather than bundled into a single rate. They can lower costs for high consumption sites with the expertise and time to manage them actively. For smaller businesses they add complexity and risk without a clear payoff, so they are rarely the right fit.
These are the two you must avoid, and understanding them is the most valuable part of this guide.
Deemed rates. The default rate you are placed on when you occupy premises with no contract, for example after moving in. Typically the most expensive rates available.
Out of contract rates. Where you land when a fixed deal ends and you have not agreed a new one. Also expensive, and completely avoidable with a diarised renewal.
Both exist because the supplier is carrying risk on your behalf with no agreement in place, so they price it high. The moment you are on either, you are almost certainly overpaying.
✓ Most small and medium firms: a fixed term deal for certainty.
✓ Larger users with in house expertise: variable or flexible, if they can manage the risk.
✓ Anyone unsure: a fix, because certainty is worth more than a gamble to most businesses.
✗ Anyone: deemed or out of contract rates, which should always be replaced with a chosen deal.
✗ A small business: a complex flexible contract it does not have time to manage.
The single most costly contract is the one you did not choose. Deemed and out of contract rates cost far more than a fixed deal, so the priority is always to be on a contract you actually selected, agreed inside your renewal window.
Once you have picked fixed, the length is a judgement about the market. A longer fix buys certainty and shields you if prices rise, but locks you in if they fall. A shorter fix keeps you flexible at the cost of facing the market again sooner. When prices look high and volatile, many businesses prefer a shorter term so they are not tied to a peak for years. When prices look low, a longer fix locks the benefit in. There is no universal answer, only the right call for the market in front of you.
One trap sits between the good contract types and the bad ones: the automatic rollover. If you do nothing as a fixed deal ends, some contracts roll you onto a new fixed term you did not choose, often at a poor rate, while others drop you onto out of contract rates. Both are worse than a deal you compared and selected. This is why the contract type you pick matters less than staying in control of your renewal. Whatever type you are on, know your end date, note the notice period, and act inside your renewal window. A well chosen fixed contract only stays a good deal if you replace it with another good deal at the right time, rather than letting it lapse into whatever the supplier offers by default.
A fixed term contract gives the most certainty, because your rate cannot change during the term. It is the usual choice for small and medium businesses.
They can suit a business that expects prices to fall and wants flexibility, but they carry the risk of rising costs, so most small firms prefer a fix.
The default rate you are placed on with no contract in place. It is typically the most expensive rate available and should be replaced with a chosen deal quickly.
Yes. You can often agree a new deal to start up to a year in advance, so you never drift onto default rates.
One where larger users buy energy in tranches and pay network and policy costs at cost. It suits high consumption sites with the expertise to manage it, not most small businesses.