Business energy contract types explained (UK)

A practical guide to fixed, flexible, deemed and out-of-contract business energy deals—what they mean, who they suit, and what to watch for before you sign.

  • Understand the main contract types and how pricing works (in plain English)
  • See realistic examples with estimated costs and typical terms (assumptions shown)
  • Know the common pitfalls: auto-rollovers, notice periods, exit fees and meter issues
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Information is UK-specific and for guidance only. Prices and terms vary by supplier, meter type, consumption and credit checks.

Fast answer: what are the main UK business energy contract types?

Most UK businesses will come across four common business energy contract types:

Fixed-rate contract
Unit rate (p/kWh) and standing charge are agreed for a set term (often 1–3 years). Predictable budgeting, but early exit fees may apply.
Flexible / pass-through / basket contract
Pricing can move with markets (or parts of it do). Can suit larger users who want risk management, but it’s more complex and can rise as well as fall.
Deemed contract (default supply)
Applies when you move into premises or you’re supplied without agreeing a contract. Typically higher rates and shorter notice to switch—worth sorting quickly.
Out-of-contract / rollover (variable)
If your fixed term ends and you don’t renew, you may move to a variable or rollover deal. Rates can be uncompetitive; check your notice period before the end date.

Key takeaway: “Best” depends on your meter type, usage profile, credit position and appetite for price certainty. The right starting point for many SMEs is comparing fixed-rate terms against the cost and risk of staying on deemed/variable supply.

How business energy contracts work in the UK (what you’re actually agreeing to)

A business energy contract sets the commercial terms for your electricity and/or gas supply. Most quotes will include (or be influenced by) the factors below.

1) Unit rate and standing charge

Quotes are usually shown as a unit rate (pence per kWh) plus a standing charge (pence per day). Your bill is broadly:

Estimated bill ≈ (kWh used × unit rate) + (days × standing charge) + VAT (usually 20% or 5% if eligible)

2) Contract length and renewal windows

Common terms are 12, 24 or 36 months for SMEs, but this varies. Many contracts have specific notice periods for renewal or termination. If you miss the window, you could be rolled onto different terms.

3) Your meter and profile (this changes what’s available)

  • Electricity meters: single-rate, Economy 7, smart meters; larger sites may have HH meters (half-hourly settled).
  • Gas meters: small supply point vs larger sites; consumption can affect the market/supplier options.
  • MPAN/MPRN: suppliers use these identifiers to price accurately; incorrect details can delay switching.

4) Payment method and credit checks

Many suppliers price best for monthly Direct Debit and may run a credit assessment. Some businesses may be asked for a deposit or offered different terms if credit risk is higher.

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No spam. Terms vary by supplier and meter. We’ll explain any fees before you proceed.

Tip: If you have it, keep your latest bill handy. It often shows your MPAN/MPRN, current rates, and contract end date—key details for accurate comparisons.

What counts as a “business” energy contract?

If energy is supplied to a non-domestic premise (shop, office, workshop, warehouse, hospitality venue, charity premises, etc.), you’ll typically be on a business tariff. Protections and switching rules differ from domestic supply, and contract terms can be more rigid.

If you’re a microbusiness (as defined by Ofgem), you may have additional protections around contract information and sales practices. Eligibility depends on employee count and consumption thresholds.

Business energy contract types: side-by-side comparison

Contract type How pricing behaves Who it tends to suit Main watch-outs
Fixed-rate Agreed unit rate + standing charge for the term. Most SMEs wanting predictable costs and simple billing. Exit fees, renewal notice periods, VAT eligibility, add-ons (e.g., green products).
Flexible / pass-through Some elements can vary (e.g., wholesale, network, balancing). May include purchasing windows. Larger users, multi-site businesses, energy managers, HH users. Complexity, budgeting risk, bill reconciliation, market timing exposure.
Deemed Default rates set by supplier; often higher than negotiated deals. New occupiers; businesses that haven’t agreed terms yet. Higher costs, unclear terms, backbilling disputes if move-in dates/meters aren’t recorded.
Out-of-contract / rollover Often variable; may switch you onto a new fixed deal automatically depending on terms. Businesses that miss renewal windows or delay decision-making. Potentially uncompetitive rates; strict notice periods; administrative delays can lock you in longer.

Decision checklist (quick)

  • Know your end date: when does your current contract finish?
  • Check your notice period: how many days before end date must you act?
  • Confirm your meter details: MPAN/MPRN, smart/HH, any recent changes.
  • Match term to risk: certainty (fixed) vs flexibility (variable components).
  • Budgeting: can you handle seasonal usage and price changes?
  • Admin reality: do you want “set and forget” or ongoing management?

Who each type suits (and who it doesn’t)

Fixed-rate suits: SMEs prioritising predictable monthly costs.
Not ideal if: you expect to move premises soon or your usage is highly uncertain (exit fees can hurt).

Flexible suits: larger users with time/skill to manage market risk.
Not ideal if: you need a simple “one rate” budget or you don’t have resource to monitor bills and market movements.

Deemed/variable suits: rarely a deliberate choice—use it as a short-term bridge.
Not ideal if: you want competitive pricing or predictable costs.

Two realistic scenarios (with numbers)

These examples are illustrative to show how contract structure affects costs. They’re not a quote. VAT, supplier terms and charges vary.

Scenario A: Small café on a 2-year fixed deal

  • Electricity use: 12,000 kWh/year
  • Unit rate (estimated): 28p/kWh
  • Standing charge (estimated): 55p/day
  • VAT: 20% (assumed not eligible for 5%)

Estimated annual cost (ex VAT):
Usage: 12,000 × £0.28 = £3,360
Standing charge: 365 × £0.55 ≈ £201
Total ≈ £3,561 (then VAT applied)

If the café might relocate within 12 months, the exit fee risk could outweigh the benefit of locking a longer term.

Scenario B: Light industrial unit on deemed rates after moving in

  • Electricity use: 45,000 kWh/year
  • Deemed unit rate (estimated): 36p/kWh
  • Standing charge (estimated): 85p/day
  • VAT: 20% (assumed)

Estimated annual cost (ex VAT):
Usage: 45,000 × £0.36 = £16,200
Standing charge: 365 × £0.85 ≈ £310
Total ≈ £16,510 (then VAT applied)

If a negotiated fixed deal came in at (say) 30p/kWh with similar standing charge, the difference on usage alone could be about £2,700/year—before VAT. Actual offers depend on meter/profile and credit checks.

Assumptions: 365-day year; usage spread evenly for illustration; standing charges and unit rates are example figures only; excludes additional pass-through charges that may apply on some flexible/HH arrangements.

Costs, exclusions and common pitfalls (UK business energy)

1) Auto-renewal and notice periods

Many business contracts require notice ahead of the end date. If you miss it, you may roll onto different terms. Always confirm the contract end date and termination window in writing.

2) Early termination / exit fees

Fixed deals often include exit fees if you leave early (including moving premises). Fees vary by supplier and may be linked to remaining consumption or time left.

3) VAT and eligibility for 5%

Most businesses pay 20% VAT on energy. Some uses may qualify for reduced 5% (eligibility rules apply). If you think you qualify, ask your supplier about the correct declaration process.

4) “Pass-through” charges on flexible deals

Some contracts separate wholesale energy from network and policy costs. Your headline rate may not represent the final billed cost if charges are passed through and vary over time.

5) Meter issues and estimated reads

Incorrect meter serial numbers, wrong MPAN/MPRN, or missing opening reads can lead to delays, disputed bills, or being billed on estimates. Take photos of the meter at move-in and keep them.

6) Multi-site complexity

If you have multiple MPANs/MPRNs, aligning end dates and terms can reduce admin, but you’ll want clarity on whether each site can switch separately and how termination works.

Plain-English rule: Don’t compare contracts on unit rate alone. Ask what’s included, the notice/renewal rules, and what happens if you move or change meter type.

FAQs: business energy contract types (UK)

What’s the difference between deemed and out-of-contract rates?

A deemed contract usually applies when you take over a supply without actively agreeing terms (often at move-in). Out-of-contract is commonly used when your agreed contract ends and you don’t renew. Both can be more expensive than negotiated fixed deals, and the exact rules depend on supplier terms and your business type.

Can I switch business energy supplier before my contract ends?

Often you can arrange a switch to take effect at the end of your contract, but leaving early may trigger termination fees. Some suppliers also restrict when you can start the switching process. Always check your contract for the termination window and fees.

What is a microbusiness, and why does it matter?

Ofgem defines a microbusiness using criteria such as employee numbers and annual consumption thresholds. Microbusinesses can have extra protections around contract information, sales practices and dispute routes. If you’re unsure, ask your supplier or broker to confirm whether you qualify.

Do contract types differ for half-hourly (HH) meters?

They can. HH (or advanced settled) supplies often have more complex pricing options (including flexible or pass-through structures) because your costs can depend on when you use electricity. You’ll usually need more detailed consumption data for accurate pricing.

What if I’m moving premises—should I sign a long fixed deal?

Be careful. If you might move during the term, check whether the supplier allows a transfer of the contract to a new address and what conditions apply (meter type, credit checks, usage). If transfers aren’t allowed, exit fees may apply. In some cases, a shorter term can reduce risk.

What information do I need to get accurate quotes?

Ideally: current supplier, contract end date, MPAN (electricity) and/or MPRN (gas), estimated annual consumption (kWh), and whether you pay by Direct Debit. A recent bill is usually the quickest way to provide this.

Are “green” business energy contracts a different contract type?

Usually “green” refers to the product’s sourcing and certification (for example, matching supply with renewable certificates), not the contract structure itself. You can often choose a green option on a fixed or flexible contract, but the price and verification approach varies by supplier.

Do business energy prices vary by region in the UK?

They can. Network charges differ by region and can affect your overall cost. Your postcode (and the supply’s network area) helps suppliers calculate these components more accurately.

Trust, methodology and sources

Page details

How we assess business energy contract types

This guide is written to help UK business owners understand contract structures before requesting quotes or renewing. We focus on the parts of contracts that most affect cost, risk and switching friction.

  • Structure: fixed vs flexible vs default (deemed/variable), and what typically triggers each.
  • Cost drivers: unit rates, standing charges, contract length, network region, meter type, payment method, VAT treatment.
  • Risk areas: renewal notice periods, auto-rollovers, early termination fees, data accuracy (MPAN/MPRN, opening reads), credit checks/deposits.
  • User intent: quick decision support with a comparison table, checklists and practical examples.

Limitations: We do not publish “typical” market-wide rates because pricing changes frequently and varies by supplier appetite, consumption, sector, meter type and credit checks. The scenarios on this page are illustrative estimates to explain calculations, not predictions.

Sources and further guidance (UK)

EnergyPlus is a whole-of-market comparison service. Availability of suppliers and products depends on the details of each supply (metering, location, usage, and credit position).

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Note: The secondary button takes you back to the summary on this page. If you’d prefer, you can also focus on the comparison table above to narrow down the contract type first.

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Updated on 11 May 2026