Volume tolerance and take-or-pay clauses explained

Your business energy price is built on an estimate of how much you will use. A volume tolerance clause is the part of the contract that says what happens if your real usage turns out very different. It rarely gets mentioned when you are comparing prices, but it can produce a bill you weren’t expecting at the end of the year.

What is a volume tolerance clause?

A volume tolerance clause sets a range, usually a percentage either side of your contracted usage, that you can use without extra cost. If your usage falls below or rises above that range, the supplier can charge you. The range is sometimes called a tolerance band.

Jellyfish Energy’s help pages give a clear example. It applies a 10% volume tolerance on many of its products, so if you use less than 90% or more than 110% of the agreed amount of energy, you face additional charges. It also offers products with other tolerance levels.

The clause goes by several names in suppliers’ terms:

Term you might see	What it usually means
Volume tolerance	The allowed range above and below your estimated usage
Tolerance band or tolerance level	The same range, expressed as upper and lower limits
Take-or-pay	You pay for a minimum volume, whether you use it or not
Minimum or maximum consumption	Hard limits on how little or how much you can take
Estimated annual usage, EAC or nominated annual consumption	The figure the tolerance is measured against

Why do suppliers include them?

Because suppliers buy energy in advance to match the usage in your contract. If you use much less, they are left with energy they may have to sell back at a loss. If you use much more, they may have to buy extra at a higher price than the one they fixed for you.

Jellyfish Energy says the clause protects suppliers from buying the wrong quantities, and that volume tolerance requirements became common after the 2009 financial crisis left suppliers holding surplus energy that was costly to resell.

The same logic sits behind early exit fees, which are often worked out from the losses of unwinding energy bought for you. See cancelling a business energy contract.

How do suppliers’ terms word these clauses?

Each supplier words it differently, so the only reliable answer is in your own terms. Four examples from published terms show the range:

• Jellyfish Energy: a 10% tolerance on many products. Usage below 90% or above 110% brings additional charges, billed separately at the end of the year.
• TruEnergy (terms v2.7): defines a tolerance level as the allowed deviation from your agreed estimated annual usage, caused by things like weather, business operations or equipment efficiency. If you exceed it, TruEnergy may renegotiate the tariff with you, charge you for the expected revenue, or charge you for the additional costs it incurred.
• Good Energy (small business terms, December 2024): sets an upper and lower tolerance limit around each month’s estimated volume, using a tolerance allowance in your quote summary. Usage above the upper limit is charged at the unit rate increased by an “out of tolerance supplement”. A shortfall below the lower limit is charged at the unit rate multiplied by that supplement.
• SSE Energy Solutions (gas terms TC8, version 3.0): for sites with a nominated annual consumption of 732,000 kWh or more, you commit to taking at least 70% of it. If you take less, SSE can charge the difference at the contract price and recover its costs of selling the unused gas back into the wholesale market. Going above 130% of your nominated maximum consumption without consent lets it recover its costs and, in some cases, limit or cut off supply.

Notice that Good Energy measures against monthly volumes, not just the annual total. Where a clause works that way, the timing of your usage can matter as well as the total.

What could a breach cost? A worked example

This example is hypothetical. The tolerance band, prices and charges below are made up to show the arithmetic. They are not any supplier’s actual terms. Your own contract will set the figures and the method.

Inputs:

• Contracted estimated annual usage: 200,000 kWh of electricity
• Tolerance: 10% either way, so the band runs from 180,000 kWh to 220,000 kWh
• Hypothetical charge for a shortfall below the band: 6p for every kWh below 180,000
• Hypothetical charge for usage above the band: an extra 4p for every kWh above 220,000, on top of the normal unit rate

Scenario	Actual use	Outside the band by	Extra charge
A: you lose a large customer and cut a shift	150,000 kWh	30,000 kWh below	30,000 x 6p = £1,800
B: normal year	190,000 kWh	Inside the band	£0
C: you add a new production line	240,000 kWh	20,000 kWh above	20,000 x 4p = £800

Two things stand out. First, the charge applies only to the energy outside the band, not your whole usage. Second, in scenario A you use less energy and still receive an extra bill, which is the part that surprises most people.

A take-or-pay example

Take-or-pay works on a minimum. Again with hypothetical figures: a gas site nominates 1,000,000 kWh a year and its contract requires it to take at least 70%, which is 700,000 kWh. It uses 600,000 kWh. The shortfall is 100,000 kWh. At a hypothetical contract price of 5p per kWh, the shortfall charge would be £5,000, before any costs the supplier is allowed to add for selling the unused gas back.

When do volume tolerance charges get billed?

Usually after the period is over, not in your regular bills. Jellyfish Energy says the charges don’t affect your fixed unit rate and appear as a separate bill at the end of the year.

Check your terms for:

• the period the tolerance is measured over (a year, a contract year or each month)
• whether the charge is automatic or at the supplier’s discretion
• how the charge is worked out
• when you will be billed and how long you have to pay

Does volume tolerance apply to small businesses?

It can. Good Energy’s general terms, written for micro and small to medium business customers, include tolerance bands and breach charges. Whether a clause applies to you depends on the product and your quote summary, so ask.

For microbusinesses, the supply licence requires the principal terms to be brought to your attention before you agree, in plain and intelligible language. Principal terms include the charges and any other term that could significantly affect your evaluation of the contract. If a tolerance clause could add a bill, ask the supplier or broker to point it out before you agree.

What if your business changes during the contract?

Tell your supplier early, and in writing. Some terms expect it:

• TruEnergy’s terms say that, if asked, you will provide expected shutdown and holiday periods and estimates of the energy you would use, at least 7 days in advance.
• If you have a half-hourly meter, both TruEnergy’s and Octopus Energy’s terms let the supplier vary your charges where a planned change to your supply is forecast to change your expected consumption or consumption profile by more than a set percentage over the next 12 months. The threshold is 20% for TruEnergy and 25% for Octopus.
• SSE’s gas terms ask for at least 49 days’ written notice if you expect to need more gas than your nominated maximum.

Telling the supplier won’t always remove a charge. TruEnergy’s terms, for example, include renegotiating the tariff as one of its options, which gives you something to discuss.

Can you challenge a volume tolerance charge?

Start with your contract and ask the supplier to show how it worked out the charge. Ofgem’s Standards of Conduct, which have covered all business customers since 1 July 2024, require suppliers to act fairly and transparently and to give information that is complete, accurate and not misleading.

Be aware of a limit. The Standards of Conduct don’t apply to the amount of a charge, except on deemed contracts. They do apply where the supplier has discretion over whether to apply or waive a fee or charge.

If you think a charge is wrong, use the supplier’s complaints process. Micro and small businesses can then take it to the Energy Ombudsman. Our complaints guide explains how. For large sums, take independent legal advice on your own contract.

How can you reduce the risk?

Use this checklist before you sign:

1. Check the estimate. Make sure the estimated annual usage on the quote matches your last 12 months of bills. Our guide to reading a business energy bill shows where to find it.
2. Find the clause. Search the terms for “tolerance”, “take or pay”, “minimum consumption” and “maximum consumption”.
3. Note the band and the period. Is it 10%, 20% or something else, and is it measured yearly or monthly?
4. Understand the formula. Ask for a worked example in writing using your own figures.
5. Plan for known changes. If you expect to expand, cut hours or install equipment such as solar panels, say so before the price is agreed.
6. Compare like with like. A slightly higher price with a wider tolerance, or none, may cost less overall if your usage is uncertain. Our guide to fixed and flexible contracts covers other ways of managing that risk.

For the other clauses worth checking, see business energy contract terms to check. When you compare business energy quotes with us, ask whether each price carries a tolerance clause.

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