Business energy contracts are often a lot more complex than what meets the eye. Understandably, many people assume that the unit price on their contract is solely for the cost of Energy, however, it’s not quite as simple as that. The cost of Energy only makes up around 40% of your bill. The other 60% is made up of non-commodity costs which include things like government levies, taxes and policy costs plus the charges for transporting, distributing and balancing Energy through the system.
What is a Fully Fixed and Fully Inclusive Contract
A Fully Fixed and Fully Inclusive contract essentially means that both the energy cost, and these non-commodity charges are included within the price you see, and this price is fixed for the duration of the contract. A contract that is not Fully Fixed means your business will be exposed to increases in non-commodity charges, or even additional charges being added to your bill throughout the term of your contract. In terms of the exposure, that’s 60% of your Energy bill that you will effectively be leaving open to change – is that really something your business can afford to risk? Non-commodity cost increases tend to be driven by uncertainty in the global markets, so when uncertainty rises, the risk of cost increases also tend to rise. In other words, when uncertainty increases, the benefit of a Fully Fixed contract rises, and the risk associated with a non-Fully Fixed contract also rises.
Why your business may be exposed without a Fully Fixed and Fully Inclusive Contract
Based on the current situation, there has never been a more important time to review your current contractual position and understand if you are at risk of cost increasing during your current contract. If you thought your contract was fixed, but your contract does not fix against non-commodity charges, then you may be in for a nasty surprise, and an unnecessary and unwelcome rise in your energy costs. Conversely, businesses on a Fully Fixed contract will have the protection against rising non-commodity charges and additional taxes and levies!
We have already seen an increase in the number of businesses on standard contracts (contracts that are not Fully Fixed and Fully inclusive) being hit by increases in non-commodity charges. One example is with business customers of SSE on their ‘Choice’ product – a contract type which is not Fully Fixed! This contract may have looked more appealing at the time due to a lower rate, but it exposed these businesses to the risk of increased costs, which many will now be feeling the brunt of due to SSE’s recent price increase!
Whilst this is nothing new, it is becoming even more common due to the effects of the Covid-19 pandemic, and the knock on effects on the cost of recovery. It is inevitable that the government will need to recoup the significant outlay they have made to support the UK through the crisis and it is very likely that these costs will be passed through to businesses via their energy bills in the form of additional taxes and levies, or increases to existing non-commodity rates.
The only real mechanism to protect your business against this and to avoid nasty surprises and additional costs is with a Fully Fixed contract.
If you would like to protect your business from the risk of these additional charges, or you would like to find out your current situation and risk exposure, then please contact us using the form below or call us on 01244 506666.