Our Managing Director, Louis Fairfax, provides some insight on how to ensure you match the requirements of your business with the various types of fixed-price contracts available.
How do fixed-price contracts differ between suppliers?
Most people assume a fixed-price contract is just that, fixed for the duration of the contract, and that’s it. However, with changes to many aspects of the market that we have witnessed since 1994, suppliers now offer an array of different options. These include but are not limited to;
- Pass through – Fixed wholesale energy cost; however, all other costs are passed through to the consumer as the supplier gets charged. This contract type means your bills will change throughout the contract’s life as supplier costs for things like environmental incentives and getting energy around the country can change monthly.
- GSP – Fixed wholesale energy cost and most other costs; however, Distribution and Transmission charges are passed through at cost – These contract types are not as popular or common as they used to be as they were mainly for businesses that could avoid using energy at certain times of day however the benefit of doing this has reduced.
- Standard – All rates are fixed; however, suppliers may increase charges throughout the contract if they change – this is the most common type of fixed price contract we encounter, but most customers are unaware that if your supplier starts making less profit on your contract than they expected to they will (and do) uplift prices mid-contract.
- Fully fixed – All costs are fully fixed at the time of signing for the contract’s life – This is the only type of fixed price supply contract that gives you budget certainty for the contract’s life as all of the costs are fixed for the duration agreed.
Anything else I should know?
It is important to note that on all of the different contract types, suppliers will always reserve the right to pass on unexpected costs – for example, if some brand new legislation comes into play mid-way through your contract. Unfortunately, there is no way to protect yourself entirely against this; however, with a fully fixed contract, most of the time, the supplier will absorb this kind of increase in our experience.
We love talking about all things energy, so please get in touch with us if you have any questions about fixed-price contracts.
