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When it comes to choosing a business energy deal, you’ll usually be faced with two tariff options: fixed price and variable.
It can be difficult to know whether to opt for a fixed or variable energy tariff when shopping for energy deals. To get the best tariff for you, you’ll need to weigh up how important issues such as flexibility and budgetary certainty are to your business. By the end of this guide, you should have a good understanding of fixed and variable plans and be able to make an informed decision for your business.
What is a fixed price energy tariff?
A fixed price energy tariff is one that sets out exactly how much you have to pay per unit of energy for the full duration of your contract. Businesses that sign up to fixed-rate energy deals are locked into them for a designated period of time (usually between one and three years although some suppliers offer five-year contracts).
Sometimes people think that fixed rate energy deals mean they will pay the same sum of money each month. This is not the case. Rather, each kilowatt hour (kWh) of energy you use is set at a fixed price but your bills are still likely to vary from one month to another as you may use more energy to heat your premises in December than you would in June, for example.
What are the benefits of a fixed-price energy tariff?
Traditionally, fixed-price energy deals have been the preferred option for businesses as they offer a range of advantages. Fixed-price tariffs can:
1.Protect you from price rises
If your supplier announces an energy price hike, you won’t be affected if you’re on a fixed-price contract. This kind of certainty can be very appealing to cost-conscious businesses that want peace of mind.
3.Give you more control over your monthly bills
Having your unit price set at a certain level for the duration of your contract can help businesses to forecast outgoings and manage their budgets more effectively.
2.Be cheaper that variable rates
Fixed rates are often cheaper than variable tariffs. The fixed-price market is highly competitive. In fact, most of the switching deals you’ll find for business customers will have fixed tariffs. With many different fixed deals available, you should be able to find the right plan for you, including contracts that will allow you to freeze your unit costs for three years or more and plans without early exit fees.
Are fixed-price energy tariffs cheaper than variable tariffs?
As mentioned above, fixed-price energy rates are often much lower than their variable counterparts. But again it is worth remembering that it’s the unit price that is frozen, not your monthly bill. With both fixed and variable tariffs, the more energy you use, the more you pay.
Also if market prices fall, suppliers will not pass on the saving to customers on fixed energy plans. If this were to happen, it could mean that you would be better off if you were on a variable tariff. The longer you’re locked into a plan, the greater the likelihood is of this happening.
What are the disadvantages of a fixed-price energy tariff?
Fixed-price gas and electric deals are popular but they do have a number of disadvantages. Fixed price energy deals can:
1.Mean you end up overpaying if prices fall
As we’ve already touched on, if energy prices drop during the duration of your fixed-rate contract, you could end up paying more than you would per unit than if you had opted for the supplier’s standard variable price. If you go for a long contract, you’re at higher risk of falling into this trap.
2.Be less flexible
Fixed-rate contracts generally stipulate that your energy usage must fall between certain volumes. This might be a problem if your usage varies dramatically from one season to another.
If you want to get out of a fixed-price contract before it ends, you’ll usually have to pay an early exit fee.
What happens at the end of a fixed-price energy contract?
If you run a microbusiness, your supplier has a duty to get in touch with you ahead of the end date of your fixed-term to let you know how much energy you use each year and provide you with information on how your fixed-term contract compares with their standard rates. This allows the smallest companies to negotiate the best deals when it comes to the expiration of their fixed-rate contracts.
Suppliers are not obliged to notify bigger businesses that their contracts are coming to an end, however if they auto-renew you onto a new contract, they should write to you to let you know the terms and conditions of your new contract. If you don’t act before your contract ends, you will be automatically moved to the new tariff. If you decide not to accept the contract, you must let your supplier know in accordance with the terms of conditions of your contract.
The best way of avoiding automatic rollover is to set a reminder for yourself of your renewal date and how much termination notice your supplier requires you to give. That way, you can shop around for the most competitive deal rather than getting stuck on a potentially inflated rate.
How can I switch to a fixed-price energy tariff?
Switching business energy deals can help to significantly reduce your bills in many cases. If you’re currently on a standard variable contract, you can switch at any time without having to pay an exit fee. So, if you see a fixed-price energy tariff that you think would suit your organisation, you can switch as soon as you like.
To move away from a standard variable energy tariff, you can search for the best deals on business gas and electricity. Once you’ve found a deal that’s right for your business, simply sign up with your new provider. You might also be able to get a good plan by contacting your supplier and trying to negotiate a better deal with them. However, you should always compare any deal you’re offered with the rest of the market before accepting.
If you’re moving from one fixed rate tariff to another, you must wait until your existing contract ends or you’ll have to pay an exit fee. To leave your existing provider, you should write a letter of termination.
What is a variable energy tariff?
Variable gas and electricity tariffs are energy price plans that can change according to wholesale energy price rises and drops. Unlike fixed rate plans, your unit price is not set at a certain amount. This means that the amount you pay for each kWh of energy could vary from one month to the next.
What are the benefits of a variable energy tariff?
There’s no doubt that variable tariffs are the less popular energy option for business customers. However, they do come with some notable advantages.
Variable tariffs can:
1.Be more flexible
If flexibility is an important factor for your business, a variable tariff may be worth considering. Unlike fixed plans where you’re tied into a deal for a specified period of time, with a variable tariff, you can switch whenever you like. So, if the prices suddenly rise or you find a better deal elsewhere, you don’t have to worry about waiting for a contract to expire before making a move.
If your supplier announces a price drop, you will see the price of your unit rate go down, meaning your energy bills could become cheaper. Fixed-rate customers, however, would not benefit from this fall in price.
What are the disadvantages of a variable energy tariff?
Variable energy tariffs may be a more flexible option, but they have their downsides too. These plans can:
1.Make it difficult to budget
On a variable rate, your business is at the mercy of rises and falls in wholesale energy prices. The volatility of the gas and electricity market can make this a precarious position to be in, particularly for businesses that need to count every penny to survive. Not knowing whether prices are going to increase, decrease or stay the same can make it difficult to budget and plan for the future.
2.Be more expensive
The majority of business energy deals are fixed contracts. The variable market is less competitive so you’ll find that the unit price tends to be higher, which could mean that you’ll be faced with higher monthly bills.
Want to know more?
Deciding whether to go for a variable or fixed energy tariff can be difficult, but we hope that this guide can help you to come to a decision that’s right for your business. For more information about commercial electricity and gas deals, don’t hesitate to get in touch today.
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