
Energy contracts can be confusing. They’re full of jargon and fine print, which often feels designed to trip you up. But understanding the details could help your business avoid unnecessary charges and keep energy costs under control. If you’ve ever wondered whether your contract is working for you (or against you) this guide will help you break it all down.
Here’s how to make sense of the key terms and avoid common pitfalls.
Why understanding your contract makes a difference
Energy suppliers don’t make it easy. Contract terms can hide fees, tie you into lengthy agreements, or leave you open to sudden price increases. Many businesses don’t realise how these details add up until it’s too late. The good news is, once you know what to look for, you can take back control and make smarter choices for your energy supply.
Missing a renewal deadline, agreeing to a contract with variable charges, or misunderstanding penalty fees can quickly lead to higher costs. But spotting these issues early could prevent overspending and give you a clearer picture of what you’re paying for.
What the key terms mean
Here’s a breakdown of the most important terms you’re likely to find in an energy contract and what they mean for your business.
Standing charge
This is the daily fee you pay to have energy supplied to your premises, whether you use any energy or not. It covers things like network maintenance and administration costs. Over time, it can make up a big part of your bill, so it’s worth checking if it’s on the high side compared to other suppliers.
Unit rate
This is the cost of the energy you use, measured in pence per kilowatt-hour (kWh). A low unit rate might look appealing, but it doesn’t necessarily mean lower bills if the standing charge or other costs are high.
Contract length (term)
This is how long your agreement lasts. Contracts typically run for 12 months, 24 months, or longer. Longer contracts might offer a stable rate but could leave you stuck if market prices drop. Shorter contracts give more flexibility but often come with higher rates.
Out of contract rates
These are the charges you’ll pay if your contract ends, and you don’t agree on a new one. They’re usually much higher than what you’d pay under a negotiated deal, so keeping track of your contract end date is essential.
Termination notice period
This is the amount of time you need to let your supplier know if you want to leave your contract. If you miss this deadline, you could be automatically rolled onto a more expensive deal. Typical notice periods range from 30 to 120 days, so it’s worth adding this date to your calendar as soon as you sign.
Early termination fees
If you leave your contract before the agreed term ends, you could face charges. These fees vary by supplier but are often linked to the amount of energy you would have used over the remaining contract period.
Pass-through costs
These are charges added to your bill for things like network maintenance and government levies. They’re not set by your supplier, so you’ll pay them no matter who you sign with. Some contracts keep these costs fixed, while others allow them to vary, which could lead to unexpected increases.
Metering costs
Your contract might include fees for installing or maintaining your energy meter. For businesses that use a lot of energy, such as those with half-hourly meters, these costs can add up.
Billing type (estimated vs. actual)
Your energy bill may be based on estimated readings if your meter isn’t regularly updated. This can lead to overpaying or underpaying, followed by adjustments later. Providing regular readings or using a smart meter can help keep your billing accurate.
VAT and other taxes
Most businesses pay VAT on energy at 20%, but some may qualify for a reduced rate of 5%. Your bill may also include the Climate Change Levy (CCL), an environmental tax on energy consumption, unless you qualify for an exemption.
Making sense of it all
Understanding energy contracts isn’t always straightforward. That’s where we come in. At CLA Energy Services, we work to make your energy agreements simpler to manage, cutting through the jargon and helping you keep costs under control.
If you’re already one of our clients, you know we’re here to help you stay on top of your energy costs. Whether it’s reviewing a contract, preparing for renewal, or addressing a question about your bill, we’ll provide the support you need to make confident decisions.
For businesses considering a new supplier, we’re here to guide you. We’ll make sure you have all the information you need to choose the right deal for your business. Our focus is always on making the process clear, fair, and easy to understand.
If you’d like to learn more or need help understanding your contract, contact us on 0808 164 6151 or energyservices@cla.org.uk
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