When it comes to business energy, one of the most important decisions you’ll need to make is choosing between fixed and variable rate contracts. Understanding the differences between these two types of energy contracts is crucial, as it can help you make an informed decision that aligns with your business’s needs and budget.
In this blog post, we’ll take a closer look at fixed vs. variable energy rates, the benefits and drawbacks of each, and how to choose the right contract for your business. But before we dive in, let’s briefly discuss business energy comparison and why it matters.
Business Energy Comparison
Business energy comparison is the process of comparing energy prices from different suppliers to find the best deal for your business. With so many energy suppliers and tariffs to choose from, it can be challenging to know which one offers the most competitive rates and best value for money.
By comparing business energy prices, you can identify the most cost-effective options and potentially save your business hundreds or even thousands of pounds each year. Business energy comparison sites, such as Utility Saving Expert, make it easy to compare energy prices from different suppliers and switch to a better deal.
Now, let’s move on to fixed vs. variable energy rates.
Fixed Energy Rates
A fixed energy rate contract means that the price you pay for your energy will remain the same for the duration of the contract, typically between one and five years. This means that regardless of any price increases or fluctuations in the energy market, you’ll pay the same rate for your energy.
Benefits of Fixed Energy Rates:
- Predictability: With a fixed rate contract, you’ll know exactly how much you’ll pay for your energy, which makes it easier to budget and forecast your business expenses.
- Protection against price increases: As energy prices are known to fluctuate, a fixed rate contract can protect your business from unexpected price increases.
- Peace of mind: Knowing that your energy rates won’t change for the duration of the contract can provide peace of mind, allowing you to focus on other areas of your business.
Drawbacks of Fixed Energy Rates:
- Potentially higher rates: Fixed energy rates can sometimes be higher than variable rates, particularly if energy prices are expected to fall.
- Early exit fees: Some fixed energy contracts come with early exit fees if you want to terminate the contract before the end of the fixed term.
Variable Energy Rates
A variable energy rate contract means that the price you pay for your energy can fluctuate based on changes in the energy market. This means that your energy rates could increase or decrease throughout the contract term.
Benefits of Variable Energy Rates:
- Potentially lower rates: Variable energy rates can sometimes be lower than fixed rates, particularly if energy prices are expected to fall.
- Flexibility: As there are no early exit fees, variable rate contracts offer greater flexibility than fixed rate contracts, allowing you to switch suppliers or tariffs at any time.
Drawbacks of Variable Energy Rates:
- Unpredictability: As energy rates can fluctuate, it can be challenging to budget and forecast your energy expenses.
- Exposure to price increases: A variable rate contract can leave your business exposed to unexpected price increases, which can impact your bottom line.
Choosing the Right Contract for Your Business
When choosing between fixed and variable energy rates, there is no one-size-fits-all answer. The right contract for your business will depend on several factors, including your budget, energy usage, and risk tolerance.
If your business has a limited budget and wants to avoid unexpected price increases, a fixed rate contract may be the best option. On the other hand, if your business is willing to take on more risk for potentially lower rates, a variable rate contract may be a better choice.
When comparing energy contracts, it’s essential to consider the unit rate, standing charge, and any additional fees or charges that may apply. Make sure you read the terms and conditions carefully, including any early exit fees, to avoid any surprises down the line.
It’s also worth considering the length of the contract. Fixed rate contracts typically last between one and five years, while variable rate contracts are often more flexible and don’t have a set term. If you’re unsure how the energy market will perform in the coming years, it may be best to opt for a shorter fixed rate contract or a variable rate contract to retain flexibility.
In addition to fixed and variable rate contracts, some energy suppliers offer hybrid contracts that combine elements of both fixed and variable rates. For example, a supplier may offer a contract with a fixed rate for the first year, followed by a variable rate for the remainder of the contract.
Hybrid Contracts
Hybrid energy contracts, also known as blended or partially-fixed contracts, are a newer type of energy contract that combines elements of both fixed and variable rate contracts. These contracts are designed to offer the benefits of both fixed and variable rates, providing businesses with greater flexibility and protection against price fluctuations.
With a hybrid energy contract, the energy rate is typically fixed for a set period, usually one or two years, before transitioning to a variable rate for the remainder of the contract. This allows businesses to lock in a fixed rate for the initial period, providing predictability and protection against price increases, while still allowing for some flexibility as the energy market changes.
Conclusion
When it comes to choosing the right energy contract for your business, there is no one-size-fits-all solution. You must consider factors such as budget, energy usage, and risk tolerance when selecting between fixed or variable rates. Hybrid contracts offer a unique combination of both types that may be more suitable depending on your requirements. It’s essential to read all terms and conditions carefully before signing up with an energy supplier in order to avoid unexpected fees or charges down the line. With careful consideration and research into different options available, you should be able to find an energy contract that meets your needs while also providing long term savings for your business.