Why three-year business energy deals are best value
The type of deal you’re on can make a big difference to the size of your business energy bills - fixed rate deals, for instance, are often the best way to avoid overpaying for energy as they offer protection from price rises.
But did you know that the length of the deal you’re on can also have an impact on your business energy bills?
A recent study from Bionic has found that signing up to a three-year deal at renewal is often a much more cost-effective option than signing up to a one-year deal. Here’s why...
How are three-year contracts currently better value than one-year deals?
The tech-enabled experts at Bionic are constantly monitoring the energy market to make sure your business is on our best possible deal. And, to make sure you never overpay for energy again, we also keep an eye on your renewal dates and proactively search for the best available rates from our panel of trusted suppliers.
When monitoring the market, we began to notice that three-year energy deals were increasingly becoming a more cost-effective option.
So we asked our number-crunchers to take a closer look, they found that business owners who signed up to a three-year deal at renewal in 2018 were likely to pay less than those who renewed on one-year deals.
Savings vary between region and consumption levels, but businesses stand to save between 3% and 5% by signing up to a three-year deal. Here are examples of the types of savings that could be made:
- Businesses in eastern England using 20MW of electricity per year saved an average of £287.20 by signing up to a three-year deal in September 2018, compared to those businesses who took out one year-deals at renewal. Businesses that use this amount of gas each year include veterinarians and electrical manufacturers.
- Businesses in the southeast of England using 10MW of electricity per year saved an average of £212.13 by signing up to a three-year deal in September 2018, compared to those businesses who took out one year-deals at renewal. Businesses that use this amount of gas each year include computer publishers and travel agents.
- Businesses in the northeast of England using 30MW of gas per year saved an average of £161.58 by signing up to a three-year deal in September 2018, compared to those businesses who took out one year-deals at renewal. Businesses that use this amount of gas each year include newsagents and unlicensed guest houses.
Why are three-year contracts currently better value than one-year deals?
When you sign up for a fixed-rate energy deal, you protect your business from energy price rises by locking in your rates for the duration of the deal.
For instance, signing up to a one-year deal will secure your rates for 12 months, but agreeing to a three-year fix locks them in for 36 months, meaning your business is shielded from potential rate rises across three years instead of just one.
As ever, rising energy prices are the main reason why it often works out more cost-effective to sign up to a three-year fixed energy deal than a fixed one-year tariff.
Although we saw a drop in wholesale energy costs during the lockdown earlier this year, prices reached their lowest point at the end of July, and rates have been on the rise ever since.
This means that any businesses who signed up to a deal before prices began to rise again in August will benefit from lower rates for the duration of their deal.
But while businesses who signed up for a one-year deal will most likely be hit with rate rises at their next renewal in 12 months' time - it’s always best to assume prices won’t drop - those who signed up for a three-year deal won’t be affected by rate increases for 36 months.
This is why we also recommend that you lock in your rates early - even if your deal doesn’t end for another six months, you can still benefit from cheaper rates by comparing rates and signing up to a new energy deal as soon as your switching window opens. This is especially important if you have a long switching window, as prices can increase quite significantly over a six-month period.
Can I extend my current business energy contract?
In some cases, this is possible. If your broker or supplier has reached out to you about a blend and extend contract then you should consider if it's the right option for you.
If you are locked into a contract with high rates, and you don't mind staying with your current supplier, then a blend and extend contract could be good for cash flow in the short term.
It works by extending the length of your contract and blending your existing rates with lower rates that reflect the current market. This means you pay a lower rate for longer. However, this is not always the best option for all businesses, as your rate is unlikely to be as low as the current market rate. So in some cases, staying until the end of your contract makes more sense. Read our full guide to Blend and Extend contracts to find out more .
How much energy should your business be using?
Average gas consumption for UK SMEs
|Business size||Average gas usage (kWh per year)||Example of business|
|Microbusiness||10,000||Beauticians. Book wholesalers.|
|Small business||25,000||Double glazing manufacturers. Food and drink preparation and processing.|
|Medium business||45,000||Library. Self-storage warehouse.|
Average electricity consumption for UK SMEs
|Business size||Low-end usage (kWh)||High-end usage (kWh)||Example of business|
|Microbusiness||5,000||15,000||Beauticians. Book wholesalers.|
|Small business||15,000||25,000||Double glazing manufacturers. Food and drink preparation and processing.|
|Medium business||30,000||50,000||Library. Self-storage warehouse.|
For more information, check out the Bionic guide to average business energy consumption.
Why do energy prices differ by region?
Distribution logistics and costs are the main reasons why energy prices differ by region. The further your business is from the distribution centre, the further your gas and electricity has to travel, which means greater distribution costs and higher rates. This is why rural areas generally pay more for energy than urban areas.
When energy has to travel further, there’s also a greater chance of gas and electricity escaping from pipes and wires, especially in regions with older equipment and infrastructure. Known as ‘Line Loss Factor’, around 7% of all electricity generated is lost in this way, and if your business is based in a region with poor losses, your rates will be proportionately higher.
Some regions also pay additional subsidies to help keep costs lower in the most remote areas of the country, such as the HIghlands and Islands of Scotland, where the costs of transporting energy could see those areas hit with unreasonably high energy bills.
How to switch business energy suppliers
The quickest and simplest way to find the best business energy deals is to speak to the tech-enabled human experts at Bionic. To save your business time and money, we use smart data and our own expertise to find the best energy deals for your business in a matter of minutes.
To get started, go to our business energy switching page and let us know your business postcode, or give us a call on 0800 086 1326.
Our business energy experts will then search for the best deals from our panel of trusted and quality UK energy suppliers, before helping you choose the right energy tariff over a short call.
You decide the deal you like best, and we’ll take care of the rest of the switch on your behalf. There's no need to worry about renewals either, as we can find you the best deals year after year.