Choosing the right energy contract for your business can be a tricky decision. One of the key choices you’ll face is whether to go with a Pass-through Contract or a Fixed-Rate contract.
Both options come with distinct advantages and potential drawbacks. Understanding these can help you make a more informed decision that fits your business needs and financial strategy.
What Is a Pass-Through Contract?
A Pass-Through Contract means your business pays the actual market cost of energy. This includes wholesale prices, transmission fees, taxes, and other charges, all passed directly to you by your supplier, often with a small administrative fee added.
The key here is transparency and flexibility: when energy prices fall, your costs go down; when they rise, so do your bills.
What Is a Fixed-Rate Contract?
With a Fixed-Rate contract, you lock in a set price for your energy over a specific term, often ranging from one to three years. This provides you with stable, predictable monthly payments regardless of market fluctuations.
It’s a safer option if you want to avoid surprises in your energy costs, though you might miss out on savings if market prices drop.
Pros and Cons at a Glance
|
Pass-Through Contract |
Fixed-Rate Contract |
|
|---|---|---|
| Price Stability | Variable, tied to market prices | Fixed and predictable |
| Risk Level | Higher risk due to price swings | Lower risk with locked-in rates |
| Potential Savings | Opportunity to save when market prices fall | No savings if market prices drop |
| Budget Planning | Harder to forecast monthly energy expenses | Easy to budget with consistent payments |
Which Contract Suits Your Business?
If your business can handle some cost variability and you want to benefit from lower market prices when they occur, the a Pass-Through contract could be for you.
If predictability and budget stability are critical for your business, then a Fixed-Rate contract would be your best option.
Final Thoughts
There’s no one-size-fits-all answer here. The best choice depends on your company’s risk tolerance, financial goals, and energy management capabilities.
At Honest, we always let you know which type of contract we're presenting you. If you have been shown a quote with a much much lower price than you've been able to find elsewhere - just make sure it's not a Pass-Through contract!
Need our help? You can reach our team by phone on 0191 7208 238 or by email at info@honestltd.co.uk
