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Business Energy Contracts: Expensive Traps and How To Avoid Them

Business energy contracts; if you’ve never been on a “rollover” or deemed energy contract before, it’s worth celebrating. These types of contracts are known to be two of the most expensive pitfalls that many businesses can fall into. Fortunately, they’re also just as easy to avoid. 

First let’s talk about what these 2 types of tariffs are, apart from being expensive traps: `

Rollover Business Energy Contracts

Avoid a “roll over contract” cancelling prior to its end-date. If not, you will be placed on a new contract which is usually at a higher rate for gas and electricity. Being able to save a good amount of money while being on a rollover contract is less likely since this type of contract is barely a competitive tariff. 

Rollover Business Energy Contracts can be a ton of problems for businesses of all sizes. Due to their extremely high rates which are much more expensive than the amount you usually need to pay.

The conditions associated with rollover contracts can prevent you from switching to a different supplier or better business energy deals. Depending on your supplier, this type of contract could trap you for at least a year. 

Rollover business energy contracts seem unfair! Isn’t that against the law?

The shift onto a rollover can be extremely frustrating. Most especially when you are unaware, it actually isn’t against the law at all.

There are a few rules that apply to rollovers that will provide micro-business energy consumers with a bit of protection. 

  • Energy suppliers are should send their consumers a letter stating the details of their contract renewal. These include the contract that will roll into, should they fail to renew their contract or switch to a different deal or supplier. This should happen around 60 days before the contract’s end date.
  • Rollover Contracts should NOT last longer than 12 months. 

Receiving a renewal letter means you have a certain period of time to negotiate with your supplier. You can also inform them that you do not wish to accept the tariff they offer you. This period will varies, so it would be best to contact them and inquire about this for future reference. 

Rollovers are a very expensive option!

A lot of businesses have found themselves rolled on to a tariff that just completely disrupted their budget. Most of them are usually unaware of this, typically because 1.) they forgot that their contract was due to end, or 2.) they never lost their power supply. 

Know that it is still legal for energy suppliers to automatically sign up their customers to a new contract. In fact, you can check your contract’s fine print right now and you will see that it is mentioned there. So never fail to send in a timely notice to your suppliers should you wish to renew or leave. 

Being placed on a rollover contract is something that can happen so easily and so fast. A lot of customers have already developed a certain sense of apathy towards this. 

The good news is, all of the Big 6 energy suppliers in the UK have agreed to end their rollover policies in 2013. Beyond that, however, there are still plenty of energy suppliers across the country that have chosen to push operations of rollover contracts. 

I do not want to be rolled over. What should I do? 

Like we mentioned earlier, it is just as easy to avoid as it is to fall into it. To avoid a rollover, provide your supplier with a termination notice that complies with their policies.

You can submit your termination notice by e-mail or fax. We advise to send a hard copy of your letter to your respective supplier. Just to make sure that they have seen your notice. 

If they acknowledge your termination, you will have enough time to compare business energy quotes. To strike the best deals that are available in your area. Remember to be very diligent about it. 

You won’t be able to be on the contract of your choice right off the bat, since you are still with your current supplier. But it’s pretty much a good idea to lock in and secure a great deal as early as possible so that as soon as your current contract has reached its end date, you will immediately benefit from the new contract. 

I am on a rollover contract. What are my options? 

It is unfortunate to say that your options may be limited at this point. Your energy supplier, by law, can choose not to release you. 

Things are different if you are a micro-business, though.

If you are a non-domestic consumer if you meet any of the following criteria: 

  • Employ less than ten employees (or their full-time equivalent) and have an annual turnover or balance sheet no greater than £2 million;
  • Consumes no more than 100,000 kWh of electricity per year;
  • Consumes no more than 293,000 kWh of gas per year.

If you’re on a rollover contract, and you any of the things mentioned above apply to you, you may be able to discuss this situation with your energy supplier without any worries. Your supplier should rectify this, if not, you can reach out to the Energy Ombudsman.

For those who are NOT a micro-business and you’re on a rollover contract, then there is nothing else that you can do but wait for it to end (which will take up to 12 months), sadly. 

There are cases where customers were automatically added to a rollover contract without notice. If you find yourself in a similar situation, you have the right to take the matter up with your supplier. 

Rollover contracts typically lock in consumers for a full year which can be extremely frustrating and expensive! Once you’ve experienced being placed on this type of tariff, you won’t wish to be in it the second time around. Never miss the opportunity to terminate or renegotiate your contract if you do not want this, to avoid the cost of a simple mistake that can be significantly harmful to your business.

Whatever you do, do not be apathetic. Once you’re in a roll over, there’s no other way out than to wait. Gain the initiative and make time for your business energy to avoid more financial complications in the long run. 

Deemed Business Energy Contracts

If you have moved to new business premises and started using electricity and gas without negotiating a contract with the energy supplier for that specific location, you will be placed under a “deemed” contract. 

Unlike the rollover contract, you can easily get out of a deemed contract by having a better contract put in place. You can also switch to a new supplier. 

Deemed rates are more expensive than the standard rates available in most contracts. We strongly recommend that you do not ignore taking action as early as possible to avoid unwanted costs and cuts to the business budget. 

Why am I on a deemed tariff? 

If you are put on a deemed tariff contract by a supplier, there could be 2 reasons behind that. 

  1. As mentioned earlier, you will most likely be on a deemed tariff if you have started consuming gas and electricity immediately after moving into a new building or establishment. 
  2. You continue to use energy despite your current deal with your supplier coming to an end.

Deemed rate contracts are at least 80% higher than standard rates that are charged in other contracts, according to Ofgem. It is among the suppliers’ most expensive tariffs to date. 

More than 10% of micro-businesses all over the country are actually on a deemed contract right now.

Meaning they are already paying much more than they should for both gas and electricity that they use. 

Micro-businesses should always receive renewal letters from their respective energy suppliers, according to Ofgem. Current prices, renewal prices, and energy consumption should also be stated in the letter. 

On the other hand, they don’t require suppliers to provide large companies with a renewal letter. This is why we always encourage owners of large businesses to always note their contract end date and whether they are close to their renewal period. You can find these in the business energy contracts and bill. 

Keep in mind that the prices listed in the renewal letter will always be higher than the best available rates. So instead of relying on what’s written there, compare business energy quotes using a comparison site such as ours for better results and deals available in your area. 

What should I do if I am placed on a deemed business energy contract? What are my rights? 

If you are placed on a deemed rate contract, you are free to ask for a full copy of your contract from your supplier; they are obliged to give you one. The supplier MUST give you a full breakdown of the charges and fees, as well as a proper explanation and a clear outline of the terms of the deal. 

The energy supplier must also provide you with alternative deals that are currently available. 

Unlike a rollover contract where a customer is tied to it for 12 months, you have the liberty to terminate your deemed contract any time you please, since there are no switching windows in a deemed tariff. You can immediately switch to a different supplier without having to worry about costly penalties. 

Remember: you can choose to switch. Your supplier CANNOT charge you a termination fee, and they are not allowed to ask you for a notice before terminating the deemed contract. 

Are there any other business energy contracts that I should know of?

First and foremost, you must familiarize yourself with what your business needs and how much energy you think it would consume annually. Factually, no one really loves the idea of shelling out ridiculous amounts of money for business energy. So understanding your budget and needs is always a good idea. 

There are 5 types of business energy contracts that many suppliers offer. Apart from Rollover and Deemed contracts, there are:

  • Fixed-term contract – If you want your peace of mind, maybe opting for a fixed-term contract will work best for you. You will be paying an agreed rate or a fixed price per kWh of energy for an agreed period of time. Fixed-term contracts typically last 1-5 years, but it all still depends on the supplier. Fixed contracts are great since you won’t be affected by any price hikes. However, that also means that you won’t be able to benefit from price falls. You can’t leave a fixed contract whenever you want, otherwise, you will have to pay an expensive fee which is called an “exit fee”.
  • Variable-rate contract – The unit prices on this contract is typically cheaper than that of fixed-rate contracts since you’ll be able to benefit from price dips, meaning you’ll pay less on electricity and gas! On top of that, you will have enough liberty to switch to a different supplier whenever you please, unlike the former. 
  • Passthrough contracts – This contract is a mix between variable and fixed contracts. The unit price is fixed, but it is usually lower compared to fixed-rate contracts. However, transmission and distribution costs are variable/flexible. If you are fine with taking a risk on non-commodity charges but are opting for a good fixed unit price, this contract might work for you. 
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