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Most businesses pay for their electricity and gas through fixed tariffs lasting up to three years.
Unfortunately, businesses can sometimes lock themselves into fixed tariffs with unfavourable rates. This is particularly true for those who agreed to fixed tariffs during the energy crisis in 2022.
This article outlines the various ways to exit a business energy contract. We begin by exploring the options for cancelling a business energy contract.
Options for getting out of a business energy contract
Unfortunately, the options for exiting a business energy contract are often limited.
When you agree to a fixed tariff, your business energy supplier enters into forward contracts with energy generators, committing to purchase the electricity or gas your company will use during the contract term.
If you terminate a fixed-rate energy contract early, your supplier may still be obligated to purchase the agreed-upon electricity or gas. To safeguard against this, business energy contracts typically include a significant exit fee for early cancellation.
We outline the three main options for exiting a business energy contract:
- Moving out of your property and invoking the “change in tenancy” process.
- Blend and extend your existing contract.
- Paying a termination fee to exit your contract.
Cancel your contract with a ‘change of tenancy’
A business energy contract is linked to specific electricity and gas supply points (MPAN/MPRN) at a particular address.
If your business relocates during the term of your energy contract, you may cancel the agreement without incurring any penalties.
To terminate your business gas or electricity tariff when moving out, you must request a “change of tenancy” form from your supplier, providing as much notice as possible.
For further details, see our guide to business utilities when moving properties.
The option to blend and extend
To support small businesses energy customers locked into costly contracts, some energy suppliers offer a blend and extend option.
This option reduces your business energy bills in the short term by allowing you to benefit from falling wholesale energy costs.
A blend and extend option will:
- Increase the length of your fixed tariff by an additional number of years.
- Lower the fixed unit price you pay over the remaining tariff term.
Financially, the blend and extend option only delays the impact of an expensive fixed tariff, as the high rates you initially agreed to are spread over a longer period.
However, it is an excellent choice for businesses facing short-term cash flow issues or those planning to relocate from their current property in the future.
Paying a business energy termination fee
Most business energy contracts allow you to cancel your agreement before the fixed term expires by paying an early termination fee.
Although the terms and conditions vary between business electricity and business gas suppliers, a typical termination fee consists of two components: an unsupplied volume fee and a market rate fee:
- Unsupplied Volume Fee – This charge amounts to 5–15% of your estimated business energy costs for the remainder of the contract. It includes both business energy standing charges and unit business electricity prices and commercial gas rates.
- Market Rate Fee – This fee applies if energy prices have dropped and compensates your supplier for being locked into purchasing your energy at an unfavourable rate. The more business energy rates have fallen, the higher this charge will be.
Energy contract termination charges are often prohibitively expensive, meaning cancelling early and switching business energy suppliers to access cheaper rates typically do not result in savings.
Steps to cancel a business energy contract
Here are the five typical steps for cancelling a business energy contract:
- Review Your Current Contract – Check the fixed-term end date of your contract to determine whether you’ll need to pay an early termination fee.
- Choose the Right Time to Cancel – Decide when to terminate the contract. Most business energy contracts require a specific notice period for termination.
- Prepare Your Termination Letter – Draft a formal termination email to your supplier. We’ve provided a template for this below.
- Send Your Termination Notice – Refer to your current contract to find the email address to which a termination notice must be sent.
- Confirmation of Receipt – Your supplier’s customer services department should confirm receipt of your termination notice and provide the next steps.
Business energy termination template
Below is a termination letter template that can be used to cancel a business energy contract. This letter should be sent to the contact address of your business energy supplier as specified in your business energy contract.
💡 If you submit a termination letter to your supplier but fail to arrange a new agreement with another supplier, you will be placed on deemed contract rates from the termination date.
[Company logo]
[business name, registered address and company number]
To whom it may concern,
On behalf of [business name], I wish to formally terminate our [current electricity/gas supplier’s name] supply agreement as of [insert contract end date].
Our Meter Point Reference Number: [Meter Point Reference Number]
Our Termination Date: [contract end date]
Our Supply Address: [company address]
This letter has been sent to you to ensure the business can now switch to a new supplier if we wish to do so when our current agreement ends.
Please ensure you provide us with written confirmation that you have received this notice of termination as soon as possible.
Yours faithfully,
[Signature]
[Your printed name]
[Your position held in business]
[Today’s date]
Is there a cooling-off period for business energy contracts?
Unfortunately, cooling-off periods are not included in business energy contracts.
While Ofgem requires domestic energy suppliers to offer a cooling-off period to their customers, this protection does not extend to businesses.
We strongly recommend ensuring that you fully understand the terms of a business energy contract before signing.
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