How business energy contracts work
Business energy contracts are the agreements that set what your company pays for its gas and electricity, and they work very differently from the deal you have at home. There is no domestic style price cap sitting behind them, you usually cannot change your mind after 14 days, and the unit rate you agree is normally locked for the whole term. That cuts both ways. Get the timing right and a business energy contract becomes one of the easier overheads to plan around. Get it wrong and you can drift onto rates that are two to three times higher than you needed to pay.
Most small firms sign a fixed term deal, usually one to five years, with a unit rate for every kWh used plus a daily standing charge on each meter. Larger sites sometimes use flexible or pass through contracts that track the wholesale market, but for the average shop, salon or office, the fixed deal is the norm. Here is the part people miss. The clock matters as much as the rate, and what happens at the end of the term is where a lot of businesses quietly lose money.
Why is there no price cap on business energy?
There is no price cap on business energy because Ofgem’s cap only protects domestic customers, not companies. The cap that makes the news every quarter, the one rising again for households from 1 July, simply does not apply to a business meter. Suppliers can price a business energy contract at whatever the market and your usage support, within the terms you sign up to.
That is why the contract itself does so much of the work. With no safety net underneath you, the rate you negotiate and the date you renew are the only things standing between your firm and an expensive default tariff. It helps to understand how the household energy price cap works, if only to see why your business does not get the same shelter.
What are deemed and out of contract rates?
Deemed and out of contract rates are the costly default tariffs a supplier moves you onto when you do not have an agreed deal in place, and they are often roughly two to three times the rate of a negotiated contract. A deemed rate usually applies when you move into new premises and start using energy before signing anything. An out of contract rate kicks in when a fixed term ends and you have not renewed or switched.
The frustrating part is how quietly it happens. Often the first sign is a bill that lands far higher than usual, weeks after the old contract expired. These rates are not really a penalty, but they are priced for the supplier’s risk rather than your budget, so they are almost always worth escaping fast. If you think you are already on one, take an accurate meter reading and start comparing a fresh business energy contract straight away.
When should you start your business energy contract renewal?
You should start looking at renewal around four to six months before your business energy contract ends, not in the final week. Most business deals have a fixed window in which you can give notice and agree new terms, and leaving it late is the surest way to roll onto out of contract rates by accident.
Put the end date in your calendar the day you sign, with a reminder several months ahead. Suppliers can usually agree a new fixed deal in advance that starts the day your current one finishes, so there is no gap and no scramble. Locking a rate early also gives you room to compare the market properly rather than accepting whatever renewal offer happens to land first. Many firms find a fixed-price energy tariff easiest to budget around, because the unit rate stays the same whatever the wider market does.
Key takeaways for business energy contracts
- There is no price cap on business energy, so your contract terms do all the protecting.
- Out of contract and deemed rates can be around two to three times a negotiated deal.
- Start your renewal four to six months before the end date and diarise it on day one.
- Ask any broker to show their commission in writing before you sign.
Energy brokers, commission and the new rules
Plenty of firms arrange their gas and electricity through a third party broker, and that can save time, but the cost of that service is often built quietly into your unit rate rather than billed separately. On a multi year business energy contract a small uplift per kWh can add up to a meaningful sum, so it pays to know what you are agreeing to.
The rules here have tightened. Since contracts signed from October 2024, suppliers must set out any broker fees in the principal terms for non domestic customers, and brokers dealing with the smallest firms must disclose their commission in writing before you sign. The Energy Ombudsman can now also handle complaints from businesses with fewer than 50 employees. Looking further ahead, the government has confirmed plans to bring energy brokers and comparison sites fully under Ofgem regulation, with a registration regime being designed through 2026. The simple takeaway: always ask a broker to show their commission, and check it against an independent comparison before committing.
How to switch business energy supplier
Switching a business energy supplier is more straightforward than many owners expect, and the switch itself usually completes within about five working days once a new contract is agreed. The work is mostly in the preparation, so it helps to have a few things to hand before you compare.
- A recent bill showing your current unit rates, standing charge and annual usage in kWh.
- Your meter numbers (the MPAN for electricity and MPRN for gas).
- Your contract end date and notice window, so you switch at the right moment.
From there, compare deals on a like for like basis, agree a start date that lines up with the end of your current term, and let the new supplier handle the changeover. Your supply is never interrupted, because the gas and electricity are physically the same, only the billing changes. Businesses running several locations should also look at how multi-site energy contracts can pull everything onto one agreement. You can read Ofgem’s own guidance on switching and energy advice for businesses before you start.
Frequently asked questions about business energy contracts
- Can I cancel a business energy contract early?
- Usually not without a fee. Unlike home deals, most business energy contracts have no 14 day cooling off period once they are live, so check the terms carefully before you sign. You can normally switch freely once you are inside your renewal window.
- What counts as a micro business for energy?
- Ofgem defines a micro business as one with fewer than 10 employees and turnover or a balance sheet under 2 million pounds, or one using below 100,000 kWh of electricity or 293,000 kWh of gas a year. Micro businesses get extra protections, including written commission disclosure from brokers.
- Are business energy rates cheaper than home rates?
- Not always. Business unit rates can look lower per kWh, but the lack of a price cap and the larger volumes mean the contract you agree matters far more. The cheapest outcome depends on your usage and how well you time your renewal.
- Do I have to use a broker to switch?
- No. A broker can save you time, but you can compare and switch directly. If you do use one, ask for their commission in writing, as suppliers are now required to disclose broker fees in the contract terms.
