Types of Business Energy Tariffs

Types of Business Energy Tariffs in the UK

A) Fixed-Rate Tariffs:

Fixed-rate tariffs are a popular option for businesses seeking stability and predictability in their energy costs. With a fixed-rate tariff, the energy supplier guarantees a set unit price for electricity or gas for a specified contract period, which typically ranges from one to three years. Regardless of fluctuations in the energy market, the business pays the same rate throughout the contract duration.


Price Certainty: Businesses can budget and plan more effectively, knowing exactly how much they will pay for energy during the contract period.

Protection from Market Fluctuations: If energy prices rise in the open market, businesses with fixed-rate tariffs are shielded from these price increases.


Early Termination Fees: Exiting a fixed-rate contract before its expiration may result in early termination fees, so businesses should carefully consider the contract term.

Potential Missed Savings: If energy prices drop during the contract period, businesses with fixed-rate tariffs may miss out on potential savings.

B) Variable-Rate Tariffs:

Variable-rate tariffs, also known as flexible tariffs, are subject to changes in the energy market. The unit price for electricity or gas can fluctuate, typically on a monthly basis, based on market conditions, supply, and demand.


No Long-Term Commitment: Variable-rate tariffs offer flexibility, as there is usually no fixed contract period, allowing businesses to switch suppliers or tariffs with shorter notice periods.

Potential for Savings: During periods of lower energy demand or market oversupply, variable-rate tariffs can provide cost savings compared to fixed-rate tariffs.


Price Volatility: The unpredictability of energy prices means that businesses may face higher bills during periods of high demand or market volatility.

Budgeting Challenges: Variable-rate tariffs make budgeting more challenging, as businesses cannot predict their exact energy costs.

C) Deemed Tariffs:

Deemed tariffs apply to businesses that have moved into a new premises without entering into a formal energy contract with a supplier. In such cases, the supplier automatically provides energy under a deemed contract until the business establishes a new contract or switches to a preferred tariff.


Temporary Solution: Deemed tariffs offer a short-term energy supply solution for businesses during the transition to a formal contract.

No Long-Term Commitment: Businesses are not tied to a long-term contract and can switch to a more suitable tariff once they have settled in the new premises.


Higher Costs: Deemed tariffs are generally more expensive than standard contracted tariffs, making them less cost-effective for long-term energy usage.

Lack of Flexibility: Businesses under deemed tariffs have limited control over their energy costs until they switch to a formal contract.

D) Multi-Rate Tariffs:

Multi-rate tariffs involve charging different unit prices for electricity based on the time of consumption. These tariffs are common for businesses with specific energy usage patterns, such as those operating during both peak and off-peak hours.


Cost Savings: Businesses with flexible energy consumption schedules can benefit from lower rates during off-peak hours, reducing overall energy costs.

Time-Based Optimization: Multi-rate tariffs encourage businesses to shift energy-intensive activities to off-peak hours, leading to more efficient energy usage.


Limited Applicability: Multi-rate tariffs may not suit all businesses, especially those with fixed operating hours that coincide with peak periods.

Complexity: Managing multi-rate tariffs requires careful monitoring and understanding of energy usage patterns to maximize cost savings.

E) Factors Affecting Business Energy Tariffs

Business energy tariffs in the UK are influenced by various factors that impact pricing. Understanding these factors helps businesses make informed decisions when comparing and choosing the most suitable energy plans. The key factors affecting business energy tariffs include:

i. Business Size and Energy Consumption: Larger businesses with higher energy consumption generally have more negotiating power and may be eligible for custom-tailored energy plans or discounted rates.

ii. Location and Regional Pricing: Energy costs can vary based on the geographic location of a business. Certain regions may have higher distribution or transmission costs, which can affect tariff rates.

iii. Contract Length and Termination Fees: The length of the energy contract can influence tariff rates. Longer-term contracts may offer more competitive prices, but businesses should consider the potential early termination fees if they need to exit the contract early.

iv. Renewable Energy Options: Businesses increasingly prioritize environmental sustainability. Energy suppliers offering renewable energy options or green tariffs may appeal to eco-conscious businesses.

v. Time of Use and Peak Hours: Multi-rate tariffs are influenced by the time of energy consumption. Businesses that can shift energy-intensive tasks to off-peak hours may benefit from lower rates.

vi. Market Conditions and Energy Demand: The overall energy market conditions, supply and demand, and global factors affect energy prices and can impact the tariff rates offered by suppliers.

vii. Government Policies and Incentives: Government regulations, subsidies, and incentives related to renewable energy adoption and energy efficiency can influence tariff structures and pricing.

By considering these factors and understanding the different types of business energy tariffs available in the UK, businesses can make well-informed decisions to optimize their energy costs and contribute to their sustainability goals.