Do you want to save money on your business energy costs in the long term? One way to do this could be to choose a fixed energy contract the next time you renew.
While a fixed rate contract has its advantages, it also comes with potential downsides. In this article, we’ll explore the pros and cons of fixed energy contracts to help business owners make informed decisions.
What Are Fixed Energy Contracts?
A fixed energy contract locks in the price of energy (electricity and/or gas) for a set period, typically ranging from one to five years. Businesses agree to pay a fixed rate per unit of energy, regardless of fluctuations in the market price during the contract term.
What are the pros of a fixed energy contract?
Budget Certainty
Fixed energy contracts provide predictable energy costs, enabling businesses to plan budgets with confidence. This stability is particularly beneficial for small and medium-sized enterprises (SMEs) that operate on tight margins and need to avoid unexpected cost spikes.
Protection from market volatility
Energy prices can fluctuate due to geopolitical events, weather patterns, and changes in supply and demand. A fixed contract shields businesses from sudden price increases, offering peace of mind in a volatile market.
Simplified management
Fixed contracts streamline energy cost management. Businesses don’t have to monitor market trends constantly or worry about timing purchases to secure the best rates.
Long-term savings
If energy prices rise significantly during the contract term, businesses on fixed contracts can save money by paying the pre-agreed lower rate.
Custom terms
Many energy suppliers offer flexible fixed-rate options, allowing businesses to tailor contracts to their specific needs, such as including green energy provisions or dual-fuel contracts.
The Cons of Fixed Energy Contracts
Limited flexibility
Once a fixed contract is signed, businesses are locked into the agreed rate and terms for the duration. If energy prices fall significantly, businesses cannot take advantage of the lower rates. However, this is inly an issue if prices are predicted to fall significantly.
Termination Fees
Early termination of a fixed energy contract can result in a cost, this would only occur if you wish to leave your contract early as the supplier would have to make up for the wholesale energy they have bought in advance.
Forecasting challenges
Determining the right contract length and timing requires accurate forecasting of energy consumption and market trends, which can be challenging without expert guidance. However choosing a good energy broker to help you along the way could reduce this issue for your business.
Is a fixed energy contract right for your business?
Whether a fixed energy contract is suitable depends on what your business does and your energy needs. Businesses with high energy usage and tight budgets may benefit from the cost stability of fixed contracts.
On the other hand, businesses willing to tolerate some market risk in exchange for potential savings might prefer variable-rate plans or hedging strategies.
Key Considerations Before Signing a Fixed Contract
- Understand your energy usage - analyse historical energy consumption to determine the best contract terms for your business.
- Assess market conditions - Consult with energy market experts to gauge the timing of your contract. Locking in rates during a low market phase can lead to significant savings.
- Evaluate contract terms - Carefully read the fine print to understand penalties, renewal clauses, and any exclusions.
- Explore green options - If sustainability is a priority, ensure the fixed contract includes provisions for renewable energy sources.
If you're looking to save money on your energy bills then why not get in touch today? The relationships Resolve Energy has developed with over 24 of the UK’s biggest business energy suppliers allows our energy experts to source the best business energy rates available for your company right when you need them. Request a free quote today and start saving money on your energy.
