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A complete guide to choosing between energy contracts as per your business needs.

As we all know, it is very difficult to predict energy prices. Factors that affect prices are demand and supply, weather, politics, global economy and list goes on!! There are many energy suppliers in the United Kingdom, supplying gas and electricity for both home and business users. There are energy brokers who assist you to make the right choice by providing accurate quotes from the experts as per your energy consumption.

Hopefully, this read will give you a bit more of a feel on how the 2 tariffs work and picking the right tariff will not be niggling. Today we are going to talk about two energy contracts (i.e. Fixed Price Contract and Variable Price Contract) available for the consumers where they get an opportunity to avail any of the contracts or services as per their consumption or needs. Since smart metering in the power sector has come to a saturation point, these technologies are simplifying innovative, dynamic pricing options that reward customers who avoid heavy practice during the peak of demand.

So, what is the difference between a fixed and variable tariff?

Well, you need to understand how billing of energy is done and the differences between fixed-rate and variable-rate energy tariffs before determining which type of tariff is best for your business. In short, fixed tariffs offer certainty about unit prices and no risk of price increase, while variable rates are more of a gamble as the price that could move up or down depending on the prices suggested by suppliers.

Fixed Price Contracts

The contract between your business and your energy supplier for a fixed duration (normally between 1-3 years) with an agreed price.

Pros:

  • As per your business and consumption, a wide variety of tariffs can be contracted on the basis of half-hourly, single rate, purchasing options.
  • If wholesale energy prices increase, or your supplier announces price rise, your unit rates won’t change. It gives the certainty of cost and guaranteed prices for the particular contract duration. This tariff will protect you from fluctuating energy bills.
  • The traditional fixed-rate tariffs may provide simplicity and equity between Consumers.
  • Get time to think beyond the limit: - Once you’re signed up for a fixed price for a fixed period, you don’t have to think about it for the contract duration, freeing you up to focus on your core business.

Cons:

  • If energy rates go down, however, you’ll be stuck paying your contract’s higher rate.
  • Exit fees are almost always applicable if you want to lay off before the contract end date.
  • Sometimes more expensive than variable ones.

Variable/Flexi Contracts

Since the energy market is pretty volatile, signing up for a variable rate means you’re probably destined to pay a different amount every month. Variable or flexi contracts enable large consumers to take advantage of short-term price volatility. If energy rates go down, so does the amount you pay for energy. If rates go up, however, you’ll have to pay more.

Pros:

  • No Exit fees.
  • If you’re on a variable rate tariff and your supplier reduces its costs, the unit rate you pay for energy and gas will fall. Potential to take advantage of short-term falls in market prices.
  • Establishes long-term arrangements with one or two key suppliers.
  • You can make great savings as you can take advantage of dropping energy prices.

Cons:

  • If prices upswing, so does your energy bill.
  • It’s a gamble:-With a variable rate plan, you could end up being surprised - either in a good way or a bad way, when you get your monthly bill.

Is a Fixed Price Energy contract value for money?

Let’s see the benefits of choosing Fixed tariff:-

Budget Planning:- With a fixed price contract, you’ll know exactly how much you’ll be compensating for your energy. You can narrow your contingency budget, freeing up more of your funds for your business.

Save your hard-earned money:- Since we all are aware of the fact that these energy prices are so volatile, but choosing fixed price contract with the help of energy brokers will save your hard-earned money when price rises because you will be paying the same price for the duration of your contract irrespective of any rise.

Still Confused?

Click here for more information Role of commercial energy consultancy in your business.

So hopefully this read must have given you a bit more of a feel on how variable and fixed tariffs work. Next time, instead of getting confused, we will look at choosing the right tariffs with the help of Business NRG, until then catch you later, bye!

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