What is a variable contract?

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Variable energy contracts for businesses

When researching business electricity and business gas quotes, it's likely you'll come across two main forms of energy contract - fixed term contracts and variable contracts. Whether you’re using an energy broker to run your business gas and business electricity price comparison or asking suppliers for quotes directly, you should be given information about the key features of each type of contract so you can decide which is more suitable for your business.

The following is a short outline of the variable contract and its main features for a business customer.

What is a variable contract?

With a variable contract, you will initially pay a specified unit rate for your electricity or gas. However, in contrast to a fixed term contract where this unit rate remains the same for the entirety of your contract, a variable contract allows this unit rate to fluctuate based on wholesale market prices.

While it is usually suppliers who are in charge of changing the unit rate, high energy users may be offered variable energy contracts that allow you to personally observe the energy market and determine your unit rates yourself. This price transparency puts you in control of your energy management, although you will need to dedicate some time each month to check the energy market and adjust your unit rates accordingly - if not, you could end up in debt to your supplier, or unnecessarily paying over the odds.

Some variable contracts available to all business customers are flexible and allow you to fix and unfix your unit rate for a specified period of time – usually on a monthly or quarterly basis. If you time it well, a fix could protect you from huge increases in price while unfixing at the right moment allows you to benefit from lowering prices. Again, this type of variable contract means you’ll need to be aware of the energy market.

Why choose a variable contract?

You’ll find that the unit rate you’re initially offered for a variable contract is lower than that you might be offered if you opted for a fixed term contract. As energy prices are almost always more likely to go up rather than down, you should expect this initial unit rate to climb.

In purchasing a variable contract, you agree that your supplier can increase or decrease the price you need to pay per unit of energy you use. In doing so, you also agree to expect a certain degree of uncertainty when it comes to paying your energy bills as you may pay more or less in one month than you do in another. Your supplier should inform you of a substantial price increase through a Price Increase Notification Letter.

What else do I need to know?

Keep in mind that some suppliers refer to their out-of-contract rates as their variable price plan. This is not the same as a variable contract, as a variable price plan means you’ll be placed on expensive out-of-contract rates if you neglect to sign an agreement with a supplier.

Out-of-contract rates are higher than any prices you might be offered within a contract, so it’s important to sign an agreement with a supplier as soon as possible. Fortunately, there are no restrictions when it comes to switching away from an out-of-contract rate, so you should be able to switch after giving at least thirty days’ written notice and paying any outstanding bills.

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