Fixed vs flexible business energy contracts

Most business energy contracts differ in one important way: who carries the risk when wholesale prices move. With a fixed contract, your supplier takes on most of that risk. With a flexible or variable contract, you keep more of the risk, and the chance to benefit if prices fall. This guide explains the main types, how wholesale prices feed through to each, and who each type tends to suit.

What is the difference between fixed and flexible energy contracts?

A fixed contract sets your price per unit for the whole contract. A flexible contract buys your energy in several purchases over time, so your final price is the average of those purchases. Fixed gives you certainty. Flexible gives you control over timing, but your budget can move.

There are two other common types: fixed contracts with pass-through charges, and variable contracts. We cover all four below.

How do wholesale prices feed into business energy bills?

The wholesale cost of energy is the single biggest part of most bills. Ofgem’s glossary puts it at about half of a business bill, with the rest made up of network costs, government schemes, supplier costs and margin. In the household price cap for October to December 2026, wholesale costs make up 47% of the total.

Wholesale prices can move fast. Using Ofgem’s figures, the monthly average day-ahead gas price rose from 79.39p a therm in February 2026 to 132.42p in March 2026. In August 2026 Ofgem said continued conflict and instability in the Middle East had been the main driver of wholesale market movements over the previous three months. Daily electricity prices move even more: Elexon’s market index price was £171.22/MWh on 27 August 2026 and £68.26/MWh on 5 September 2026.

How much of that reaches your bill, and when, depends on your contract:

• Fixed: the price is set when you agree the contract. Later moves don’t change your unit rate until you renew.
• Flexible: each purchase is made at the market price on the day, so your average reflects the market over the buying period.
• Variable: the rate is linked to the market and can change during the contract.

Ofgem and consumer groups also note that suppliers often buy energy in advance, some two to three years ahead, and usually buy for fixed-term tariffs closer to when they launch them. That’s why wholesale changes don’t affect every tariff at the same time. You can follow recent movements on our wholesale energy prices page.

What is a fixed energy contract?

A fixed contract charges you a set price for each unit of energy for the length of the contract, regardless of what happens in the market. Ofgem describes it as a contract where the terms and rates stay the same for a fixed period.

Two points people often miss:

• It fixes the price, not the bill. Your bill still goes up or down with the energy you use.
• Timing still matters. Your rate reflects the market when your contract is priced. Fixing just after a price spike can lock in a high rate for years.

Who it may suit: most small and medium businesses, and anyone who needs a predictable budget.

Main risks: you won’t benefit if prices fall, and leaving early usually means paying termination fees. Business contracts don’t normally have a cooling-off period.

What is a fixed contract with pass-through charges?

On a pass-through contract, the energy part of your price is agreed up front, but some non-energy costs are passed on to you at cost and can change during the contract.

Ofgem splits business energy costs into commodity costs (the wholesale energy) and non-commodity costs. The non-commodity side includes network and metering charges, environmental and social schemes such as the Renewables Obligation and Contracts for Difference, third-party fees, taxes and supplier operating costs. Ofgem’s glossary describes environmental and social costs as costs “passed through” to bills, and notes they are subject to change.

On a fully fixed contract, the supplier builds its estimate of those costs into your rates. On a pass-through contract, you pay what they actually turn out to be, and your bill may list them as separate lines.

Who it may suit: medium and larger businesses that want to fix the energy price but are comfortable with some movement in the rest of the bill.

Main risk: your bill can rise during the contract if network or policy costs go up. Check exactly which costs are passed through before you sign.

What is a flexible energy contract?

A flexible (sometimes called basket or tranche) contract buys your energy in a series of purchases over months or years, rather than all at once. Your price is the average of those purchases, plus non-energy costs.

The idea is to avoid the risk of buying everything on one bad day. You, or someone acting for you, decides when to buy, usually following an agreed strategy with limits on how much risk you’ll accept.

The government’s next public sector energy agreement, RM6390, expected to be awarded in December 2026, is one example. It is designed to give public bodies a choice of energy trading strategy based on their level of risk, alongside fixed-price options, with energy bought collectively on their behalf.

Who it may suit: larger energy users, multi-site businesses and organisations with in-house expertise or a specialist adviser. See multi-site business energy.

Main risks: less budget certainty, the need to manage and monitor the buying, and the chance of buying into a rising market.

What is a variable energy contract?

On a variable contract, your unit rate is linked to the market, so both your unit rate and standing charge can change during the contract. Ofgem notes your payments can go up or down.

Variable is different from deemed and out-of-contract rates, which apply when you haven’t agreed a contract, for example after moving premises or when a fixed deal ends. Ofgem and consumer groups say deemed and out-of-contract rates are usually among a supplier’s most expensive. See deemed contracts and out-of-contract rates.

Who it may suit: businesses that need a short-term arrangement or expect to move soon.

Main risk: prices can rise at short notice.

How do fixed, pass-through, flexible and variable contracts compare?

Contract type	What’s agreed up front	What can change	Budget certainty	Tends to suit
Fixed	Unit rate and standing charge for the term	Your usage	High	Most small and medium businesses
Fixed with pass-through	Energy price	Network, policy and other pass-through costs	Medium	Medium and larger businesses
Flexible	Buying strategy and fees	Energy price, depending on when purchases are made	Lower	Large and multi-site users
Variable	Terms, not rates	Unit rate and standing charge	Low	Short-term needs

How do you choose between fixed and flexible?

We can’t tell you which contract is right for your business, but these questions will help:

1. How much budget certainty do you need? If a sudden price rise would cause real problems, a fixed contract reduces that risk.
2. How much energy do you use? Flexible buying is generally aimed at larger users, because it takes time and expertise to run well.
3. Who will manage it? Flexible contracts need someone to set a strategy, watch the market and make decisions.
4. When does your current contract end? Find out how early you can agree your next contract. Starting early gives you time to watch the market rather than fix in a hurry.
5. What exactly is fixed? Read the principal terms. Check whether standing charges and non-energy costs are fixed or passed through.

Whichever you choose, know your contract end date and renewal window. If you don’t act, you may roll onto a new contract automatically. For microbusinesses, a rollover contract can’t last more than 12 months. Our contract renewal guide explains what to do and when.

If you use a broker, make sure you understand how they’re paid and what they’re doing for you. See our guide to energy brokers.

Frequently asked questions