How to cancel your business energy contract
In the autumn and winter of 2022, the wholesale cost of business energy soared to record levels, and the fixed-rate business energy tariffs offered on the market were incredibly expensive.
At the height of the energy crisis, the following fixed unit rates were the best available on the market:
- Fixed business electricity rate – 90p/kWh
- Fixed business gas rate – 40p/kWh
Thankfully, prices have fallen significantly since then, and now much better deals are available with our business energy comparison service.
However, this is little comfort if your business is now stuck with expensive business electricity prices or business gas prices. The Federation of Small Businesses estimates that 13% of small businesses are stuck with these expensive fixed tariffs. This article explores the options available if you’re trying to get out of a business energy contract.
Options for getting out of a business energy contract
Unfortunately, the reality is that the options for getting out of a business energy contract are limited.
When you agree to a fixed-rate contract, your business energy supplier will enter into forward contracts with energy generators agreeing to purchase the electricity or gas your company will use during the contract.
When you terminate a fixed-rate energy contract, your supplier is typically stuck continuing to purchase your electricity or gas. To protect them against this, a supplier typically charges an expensive exit fee for early termination.
The one big exception to this rule is the “change of tenancy” rule:
Explaining ‘change of tenancy’ for business energy contracts
If your business moves out of your property during your business energy contract, then you can terminate your contract without any penalty.
To terminate your business gas or electricity tariff when moving out, you’ll need to request a “change of tenancy” form from your supplier, giving them as much notice as possible.
For more information, here’s our guide to business energy when moving properties.
The option to blend and extend
To assist small businesses on the most expensive contracts, a handful of business energy suppliers now offer a blend and extend options to their customers. A blend and extend option reduces your business energy bills in the short term by allowing you to benefit from partially lower wholesale energy costs.
A blend and extend option will:
- Increase the length of your fixed tariff for an additional number of years.
- Lower the fixed unit price you pay over the remaining tariff.
Financially, the option to blend and extend only delays the pain of an expensive fixed tariff. The expensive rates you agreed will be spread over a longer term. That being said, it’s an excellent option for businesses where short-term cash flow is an issue.
Termination fees in a business energy contract
You’ll incur an early termination fee if you terminate your business energy tariff before the contract ends.
Although the terms and conditions of each business electricity and business gas supplier are different, a typical termination fee will include any unsupplied volume and a market rate fee:
Unsupplied volume fee – A supplier will typically charge 5 – 15% of your estimated business energy costs for the remainder of the contract. This includes both business energy standing charges and unit rates per kWh for electricity and gas.
Market rate fee – A supplier will typically charge you for being stuck with the obligation to purchase your energy from the wholesale market. The more business energy rates have fallen (and therefore, the more onerous their purchase contract), the higher this charge will be.
Energy contract termination charges are expensive, so switching business energy suppliers to cheaper rates won’t be worth incurring.
Securing lower business energy rates at the end of your contract
Unfortunately, you must often wait for your current business energy contract to end before you can secure lower rates.
In the business energy market, you can secure your new rates one year before your current contract ends. When you’ve got one year left on your contract, we recommend comparing rates offered by different suppliers using our comparison tools:
Here’s our complete guide to coming to the end of a business energy contract.
How else can I save my business money?
Even though you may be stuck in your energy contract, here at AquaSwitch, we can help you save money on some of your other utilities!
Use our simple business water comparison service to save thousands on your business water bills.