How Business Energy Contracts Work

Fixed terms are the norm

Most commercial gas and electricity is sold on a fixed-term contract, typically running from one to five years. The supplier buys (or 'hedges') the energy for your business in advance on the wholesale market, based on your expected consumption over the term. In exchange, you get a known unit rate for the length of the contract.

Because the supplier has committed to buying that energy on your behalf, commercial contracts generally cannot be cancelled early without a termination charge, and there is no statutory cooling-off period once you've signed as a business (unless you're a micro-business meeting specific criteria, which is worth checking with your supplier directly).

Unit rate and standing charge

Every commercial energy bill is built from two core components: a unit rate, charged per kWh consumed, and a standing charge, a fixed daily amount charged regardless of usage. The standing charge covers the cost of maintaining your connection to the network; the unit rate covers the energy itself plus a share of non-commodity costs.

• Unit rate (p/kWh) — varies by supplier, contract length and when you buy
• Standing charge (p/day) — fixed cost of being connected to the network
• Climate Change Levy — added to bills unless your business is exempt or reduced-rate
• VAT — usually 20%, though some businesses qualify for the reduced 5% rate

Why the renewal date matters so much

Because contracts are fixed and hard to exit early, the renewal window before your contract ends is effectively the only point where you have real choice. Miss it, and supply usually rolls onto a supplier's out-of-contract or deemed rate — almost always the most expensive way to buy energy.