What are blend and extend contracts? And could your business save money by switching?
Blend and extend is a type of business energy contract that increases the length of your current contract and immediately lowers the rates you pay. This type of contract is designed to help customers benefit from a drop in market prices despite being signed up to a fixed term contract on higher rates.
Here’s how it works:
- The rates on your existing contract are blended with the current market rates to give you a new unit price for the energy you use. This rate will be somewhere between the two prices (not as high as your current rates, but not as low as the current market rates)
- You’ll start paying this new rate straight away and your contract will be extended for a certain period, during which time this rate will be fixed. This will cut your energy bills and give your business price certainty for a longer time.
Blend and extend contracts are complicated products that are rarely offered by suppliers. But some have started offering to blend and extend to businesses that signed fixed contracts during the height of the energy price crisis. This is to help those that have been struggling to pay their bills since the government support for energy bills was slashed in April 2023.
Although blend and extend contracts sound like a good compromise – you get cheaper rates, and your supplier gets to keep you as a customer – they aren’t necessarily the best option for all businesses.
If you’re considering this option, you need to weigh up the pros and cons before you make your decision:
- You instantly get cheaper rates that could help you save money on your energy bills
- Your rates will be locked in for a certain period, which will protect you from price rises during that time.
- The rates you’re offered are unlikely to be as low as the current market rates. This means a blend and extend option might not be the best for your business. If, for example, your current contract has six months or less left to run, you might be able to save more by staying on your current rates and switching suppliers at the end of this contract.
- You might be contracted to your current supplier for longer than you would usually like.
Let’s take a closer look at how blend and extend contracts work to help you make an informed decision.
How do blend and extend contracts work?
When you sign a new business energy contract, you need to wait until your current one ends before your new rates kick in.
But blend and extend contracts allow you to extend your contract with your current supplier and benefit from lower rates almost immediately (you don’t need to wait for your current contract to end before the new rates take effect). These rates will be lower than your current contract, but higher than market rates.
Here’s how they work:
- Blended rate – To work out your blended rate, your supplier will take your contracted rate, the current market rate, and work out a price that’s somewhere in between. This rate will be applied straight away.
- Extended contract - Blend and extend contracts usually run for 12 or 24 months on top of however long you have left on your current contract. You’ll be locked into this contract for this set period.
Why are suppliers offering blend and extend contracts?
Blend and extend contracts aren’t a new thing. But they are complex products, which is why they’re rarely offered by suppliers. But thousands of businesses that signed up for fixed gas and electricity contracts during the height of the energy price crisis have seen their bills soar since government support was reduced in April.
Figures from the Federation of Small Businesses estimate that this could force up to 370,000 small businesses to downsize, restructure, or even close for good.
To recap, the Energy Bill Relief Scheme ran from October 2022 to March 2023 and gave customers a discount of between 20p and 40p on their unit rates. This scheme was replaced by the Energy Bills Discount Scheme in April 2023, when discounts were cut to between 1p and 2p per kWh.
Since then, customers who signed fixed-rate deals towards the end of last year have seen a significant increase in their bills – all while market prices are falling.
And because of the way business energy is bought and sold, along with the way contracts are set up, there’s no option to take advantage of lower rates by ending your current contract early. Remember, unlike domestic energy contracts, business energy contracts can’t be terminated. This means you’re locked into the contract until it reaches its end date.
Bionic has been working with suppliers and the government to come to an arrangement that can help businesses in this situation. Blend and extend is being seen as a compromise option as it lengthens the overall contract to cut the rates that businesses are paying.
This could benefit many businesses but won’t be the right option for all. When working out whether a blend and extend contract is right for you, consider your current needs and circumstances alongside any other options that are available.
For instance, what if you could lock in rates that are cheaper than those offered by your supplier’s blend and extend contract?
This would mean paying higher rates for the remainder of your contract, but you may be able to offset this with the cheaper rates offered by your new supplier.
Is blend and extend the best option for your business?
When deciding whether a blend and extend contract is best for your business, it helps to work out how much you’d pay in total over the course of the contract.
You can then compare that to how much you’d pay if you were to see out the rest of your current contract before paying lower market rates with a new contract.
We've explained how they work, but how could that look in practice? Here’s an example of how a blend and extend electricity contract could work for your business (all calculations below exclude standing charges):
- You’re currently paying 65p per kWh and your contract has six months remaining
- Your supplier offers you a 24-month blend and extend contract with rates of 50p per kWh
- You agree to the new contract. This immediately blends the 50p rate into your current contract and extends it for a further 24 months
- This means you’ll be with your supplier for the next 30 months, paying a fixed unit rate of 50p per kWh.
If you accepted this offer and used 15,000 kWh of electricity over the course of the 30-month contract (about average usage for a micro business), you’d pay £12,500 for your energy usage.
But what if you were to see out the rest of your contract and line up a lower-rate deal for when it ends?
The blend and extend price won’t be as low as the current market rates. Would you be able to save more money if you could lock in rates that are below the blend and extend offer?
Here’s how that scenario could play out:
- You’re currently paying 65p per kWh and your contract has six months remaining
- You compare prices and lock in rates of 35p per kWh with a new supplier
- You pay 65p per kWh for the remaining six months of your current contract
- As soon as this contract ends, you switch to your new supplier and then pay 35p per kWh for the next 24 months.
In this instance, you’d pay £3,250 for the electricity used during the final six months of your current deal. You’ll then pay £7,000 for the electricity you use during the 24 months of your new contract.
This means you’d pay £10,250 for 30 months of electricity. Although you paid more for your energy over the final six months of your contract, this option works out to be £2,250 cheaper than the blend and extend offer.
While you’ll pay higher rates until your current contract ends, this could save you more money in the long run.
Jennifer Millet, Commercial Director at Bionic, explains how deciding on whether to take a blend and extend offer all depends on what works best for your business:
“Blend and extend could offer a good option for some businesses but not all.
“If you need cheaper rates now – say cash flow is an issue - a blend and extend contract could be a good option as it should help to cut your bills immediately. But it will most likely mean you pay more overall.
"But if you can afford to keep paying the higher rates until the end of your current contract, it could be worth doing that. You can then sign up for a new contract on today’s lower market rates, which should save more in the long run.”
“When making your decision, you need to weigh up the pros and cons and see how these fit into where your business is now.”
The team at Bionic is working hard with our panel of suppliers to get lower blend and extend rates for our customers and we’re always on hand to help you work out which option is best for your business.
How to get a blend and extend energy contract
Some business energy suppliers have started to offer blend and extend energy contracts to businesses that signed fixed contracts during the height of the energy price crisis. If your supplier hasn't offered blend and extend but you think it could be a good option for your business, here's what you need to do.
If you're a Bionic customer
We've been working with our panel of suppliers to find the right solutions for our customers. If your supplier is offering blend and extend then we'll be in touch to let you know the details. Make sure you read all the details and weigh up whether this is the best option for your business.
If you've not heard from us or you need some help working out whether blend and extend is the right fit for your business, give us a call on 0800 158 5263.
If you're not a Bionic customer
If you're not a Bionic customer, you should wait to hear from your supplier or give them a call if they've not been in touch.
If your contract is up for renewal soon, we may be able to help you switch to a new deal. Locking in market rates now might even work out to be more cost-effective in the long run. Give us a call on 0808 253 7051 to find out more.
How to switch business energy suppliers
One quick call to us is all it takes to have our experts search for the best prices from our panel of trusted business energy suppliers and negotiate exclusive rates - saving you time and money that can be put back into your business. And our Digital Renewals service means you never again need to worry about rolling onto more expensive out-of-contract rates.
To see how much you could save, put your postcode in the box on the right, or give our tech-enabled team a call on 0800 327 7384.
We can also help with those other business essentials, including insurance, finance, phone and broadband. Or future-proof your business ahead of the 2025 digital switchover by replacing your landline with a VoIP system.