How long should you fix a business energy contract? 1, 2, 3 and 5-year length deals

Most UK businesses can choose between energy contracts lasting one, two, three, four or five years. The best length depends on the prices offered, the company’s attitude to risk and how likely its premises or energy requirements are to change.

A one-year contract provides more flexibility and an earlier opportunity to take advantage of falling energy prices. A three or five-year contract offers longer protection against price increases but could leave the business paying above-market rates if prices subsequently fall.

There is no contract length that is automatically cheapest for every business. You should compare the unit rate, standing charge, additional fees and total cost for each available term before deciding.

If your current agreement is approaching its end date, compare prices for business energy tariffs across different contract lengths before fixing your gas or electricity costs.

The quick answer

For many small businesses, a contract lasting between one and three years provides a reasonable balance between price certainty and flexibility.

However:

• A one-year contract may suit a business expecting prices to fall, planning to move or anticipating substantial changes in consumption.
• A two-year contract provides more certainty without making a particularly long commitment.
• A three-year contract may suit an established business that values predictable unit rates and expects its operations to remain stable.
• A four or five-year contract offers the longest protection against price increases but carries the greatest risk of being locked into an uncompetitive tariff.

Business energy contracts can last for up to five years. Citizens Advice says most small-business energy contracts last between one and three years.

The correct decision should be based on the actual quotes available rather than a general assumption that shorter or longer contracts are always better.

How long do business energy contracts last?

Fixed business energy contracts commonly have terms of:

• 12 months
• 24 months
• 36 months
• 48 months
• 60 months

Some suppliers use exact start and end dates rather than describing the agreement as a certain number of months. A nominal three-year contract could therefore be slightly shorter or longer than 36 months, depending on when the new supply begins.

Gas and electricity normally have separate contracts. This means a business could have a one-year electricity agreement and a three-year gas agreement, even where both are supplied by the same company.

According to Ofgem’s business energy guidance, commercial contracts can last for up to five years and most suppliers will not allow customers to switch before the fixed term ends.

What does fixing business energy prices mean?

A fixed business energy contract normally sets the unit rate charged for each kilowatt hour of gas or electricity for a defined period.

However, a fixed contract does not necessarily mean that:

• The monthly bill is fixed.
• Every charge on the bill is fixed.
• Consumption is unlimited.
• The business can leave whenever it wants.
• Prices will fall if the wholesale market becomes cheaper.
• The contract automatically ends without further action.

The amount paid will still depend on how much energy the business consumes.

For example, a company paying a fixed electricity rate of 25p per kWh would spend:

Annual consumption	Annual unit cost
10,000 kWh	£2,500
25,000 kWh	£6,250
50,000 kWh	£12,500
100,000 kWh	£25,000

These figures exclude standing charges, VAT, Climate Change Levy and any other costs.

A fixed unit rate therefore provides price certainty for each unit consumed, but it does not guarantee a fixed total bill.

Are all fixed business energy contracts fully fixed?

No. The word “fixed” can describe different pricing arrangements.

Fully fixed contract

A fully fixed contract attempts to include most predictable energy, network and policy costs within the agreed rates.

It offers greater budget certainty, although the contract should still be checked for charges that can change.

Fixed energy-only contract

The wholesale energy element may be fixed while other costs are charged separately.

These could include:

• Distribution charges
• Transmission charges
• Balancing costs
• Capacity Market charges
• Renewable policy costs
• Metering charges
• Maximum Import Capacity charges
• Changes in taxation

Pass-through contract

A pass-through contract fixes some elements while passing specified external charges to the customer as they arise.

The initial unit rate can look competitive, but the total bill may change when the underlying costs change.

Before comparing contract lengths, establish whether the competing quotes include the same cost components. A three-year fully fixed offer cannot be compared fairly with a three-year pass-through offer using the headline unit rate alone.

Our guide to fixed and variable business energy tariffs explains the principal contract structures in more detail.

Comparing business energy contract lengths

Contract length	Price certainty	Flexibility	Exposure to falling prices	Exposure to rising prices	Renewal frequency
One year	Low–medium	High	Low	High	Annual
Two years	Medium	Medium–high	Medium	Medium–high	Every two years
Three years	High	Medium–low	High	Low	Every three years
Four years	Very high	Low	Very high	Very low	Every four years
Five years	Very high	Very low	Very high	Very low	Every five years

This table describes the general risk profile. The actual value depends on the prices and contractual terms offered.

A five-year quote could sometimes have a lower annual rate than a one-year quote. At other times, the five-year price will include a premium for giving the customer longer-term certainty.

One-year business energy contracts

A one-year fixed contract usually covers a period of approximately 12 months.

Advantages of a one-year contract

• The business is not committed for several years.
• It can compare prices again relatively quickly.
• It may benefit sooner if market prices fall.
• It can suit a business expecting to move.
• It reduces exposure to long-term supplier service problems.
• It may suit companies planning major energy-efficiency projects.
• Forecasting consumption for one year is easier than forecasting five years.

Disadvantages of a one-year contract

• The company must renew more frequently.
• It has greater exposure to future price increases.
• Renewal administration takes place every year.
• The next renewal could occur during an expensive market period.
• Broker or procurement work may need to be repeated annually.
• Prices may be higher than equivalent longer-term offers.

Who might choose one year?

A one-year contract may suit:

• A new business with uncertain consumption.
• A tenant with a short commercial lease.
• A company planning to move premises.
• A business expecting to close or sell a site.
• An organisation installing solar panels.
• A company electrifying vehicles, heating or machinery.
• A customer expecting market prices to fall.
• A business dissatisfied with its supplier but unable to find a preferable long-term alternative.

The main risk is that prices could be significantly higher when the contract expires.

Two-year business energy contracts

A two-year contract fixes the agreed rates for approximately 24 months.

It sits between the flexibility of a one-year agreement and the longer certainty of a three or five-year contract.

Advantages of a two-year contract

• Two years of price certainty.
• Less frequent renewal administration.
• More flexibility than a three or five-year contract.
• Protection against near-term wholesale price increases.
• May offer a competitive compromise between one and three-year prices.
• Suitable for businesses with reasonably stable operations.

Disadvantages of a two-year contract

• The business cannot benefit immediately if market prices fall.
• It may still outlast a short tenancy.
• Consumption could change substantially during two years.
• Early termination rights may be limited.
• A cheaper quote may be available for a different duration.

A two-year contract is often worth considering when the business wants protection but is uncomfortable making a three or five-year commitment.

Three-year business energy contracts

A three-year business energy contract normally fixes agreed rates for approximately 36 months.

Citizens Advice states that most small-business energy contracts last between one and three years, making three years a common upper term for SME agreements.

Advantages of a three-year contract

• Longer protection against price increases.
• Improved budget certainty.
• Fewer renewal exercises.
• Less risk of accidentally reaching out-of-contract rates.
• Easier long-term financial forecasting.
• Potentially attractive rates where future wholesale prices are lower.
• Suitable for established businesses with predictable consumption.

Disadvantages of a three-year contract

• The company may overpay if market prices fall.
• Moving premises can create contractual complications.
• Poor supplier service could continue for the full term.
• Consumption may change because of growth or efficiency projects.
• Broker commission can accumulate over three years.
• The business usually cannot switch simply because it finds a cheaper price.

Who might choose three years?

A three-year contract may be suitable for:

• An established company with stable premises.
• A business with predictable annual consumption.
• An organisation that prioritises budget certainty.
• A company with tight margins that cannot absorb a sudden price increase.
• A business satisfied with the supplier and contractual terms.
• A customer that considers the available long-term price competitive.

The total three-year commitment should be calculated before acceptance. A difference of only 1p per kWh becomes £3,000 over three years for a business consuming 100,000 kWh annually.

Four-year business energy contracts

Four-year agreements are less commonly discussed but may be available from some suppliers.

They provide long-term certainty without the maximum commitment of a five-year contract.

A four-year agreement might align with:

• A commercial lease.
• A financial planning cycle.
• A manufacturing contract.
• A sustainability programme.
• A period of expected operational stability.

The same long-term risks apply. The business should consider whether its premises, ownership, consumption and technology are likely to remain broadly unchanged for the whole term.

Five-year business energy contracts

A five-year contract fixes the agreed pricing arrangement for approximately 60 months.

This is a substantial commercial commitment. It may provide valuable protection against rising prices, but it also gives the business few opportunities to react if the market becomes cheaper.

Advantages of a five-year contract

• Maximum long-term price certainty.
• Protection against several years of market increases.
• Fewer renewal exercises.
• Easier long-term budgeting.
• Reduced risk of missing annual renewal deadlines.
• Potential value where the long-term quote is competitively priced.
• Can support predictable pricing for long-term customer contracts.

Disadvantages of a five-year contract

• Very limited flexibility.
• High exposure to future price falls.
• The contract may outlast the premises or lease.
• Consumption could change significantly.
• The business could remain with an unsuitable supplier for years.
• Broker commission may accumulate throughout the term.
• Changes in technology could make the tariff inappropriate.
• It is difficult to forecast energy requirements accurately over five years.

Who might choose five years?

A five-year agreement might suit:

• A financially stable organisation.
• A business occupying long-term premises.
• A company with consistent and predictable demand.
• An organisation that values certainty more than potential future savings.
• A business with customer contracts requiring stable input costs.
• A company offered an unusually competitive long-term rate.
• An organisation concerned about sustained wholesale price increases.

It is generally less suitable where the business expects material changes in premises, ownership, production or energy technology.

Are longer business energy contracts cheaper?

Not necessarily.

A longer contract could have a lower unit rate, a higher unit rate or the same unit rate as a shorter agreement.

Suppliers calculate prices using wholesale energy contracts for future delivery. The price of energy to be delivered next year can differ from the price for delivery in three or five years.

A longer quote may also reflect:

• Supplier hedging costs.
• Credit risk.
• Expected network charges.
• Policy and environmental costs.
• Inflation.
• Forecast consumption.
• The business’s creditworthiness.
• The meter type and location.
• The supplier’s commercial strategy.
• Broker commission.

If future wholesale prices are expected to be lower, a longer contract could produce a lower blended rate. If future prices are expected to be higher or uncertain, the supplier may charge more for long-term protection.

Never assume that a longer deal must provide a discount.

Worked example: one year versus three years

Consider a business using 50,000 kWh of electricity each year. It receives:

• A one-year quote at 25p per kWh.
• A three-year quote at 26p per kWh.
• Both have a standing charge of £1 per day.

The three-year contract costs:

Calculation	Annual cost	Three-year cost
50,000 kWh at 26p	£13,000	£39,000
Standing charge	£365	£1,095
Total	£13,365	£40,095

The one-year contract initially costs £12,865.

What happens over three years depends on the prices available at subsequent renewals.

Scenario one: prices fall

Year	Unit rate	Annual cost including standing charge
1	25p	£12,865
2	22p	£11,365
3	20p	£10,365
Total		£34,595

Under this scenario, taking consecutive shorter contracts would save £5,500 compared with the original three-year fix.

Scenario two: prices rise

Year	Unit rate	Annual cost including standing charge
1	25p	£12,865
2	30p	£15,365
3	34p	£17,365
Total		£45,595

Under this scenario, the original three-year contract would save £5,500.

The examples are deliberately symmetrical and purely illustrative. They show that the longer contract exchanges flexibility for certainty. The future result cannot be known when the initial decision is made.

VAT, Climate Change Levy and other charges have been excluded.

How contract length affects the total cost

Do not compare contract lengths using only the first year’s estimated bill.

Calculate:

Annual energy cost = annual consumption × unit rate

Annual standing charge = daily standing charge × 365

Annual fixed cost = energy cost + standing charge + other fixed fees

Total contract cost = annual fixed cost × number of years

For a contract where consumption is expected to change, calculate each year separately.

For example, planned solar panels could reduce imported electricity by 30% in year two. A five-year quote based on current consumption might therefore be inappropriate, even if the unit rate appears competitive.

How much can a small price difference cost?

Small differences become important when multiplied by high consumption and a long contract.

Annual consumption	0.5p difference over one year	0.5p difference over three years	0.5p difference over five years
10,000 kWh	£50	£150	£250
50,000 kWh	£250	£750	£1,250
100,000 kWh	£500	£1,500	£2,500
500,000 kWh	£2,500	£7,500	£12,500
1,000,000 kWh	£5,000	£15,000	£25,000

This is why a slightly higher unit rate should not be dismissed as insignificant on a long-term contract.

The same principle applies to broker commission incorporated into the unit rate.

How broker commission changes with contract length

A broker may be paid through a fee added to every kilowatt hour consumed during the contract.

Suppose the broker receives 0.8p per kWh and the business uses 100,000 kWh a year.

Contract length	Estimated broker commission
One year	£800
Two years	£1,600
Three years	£2,400
Five years	£4,000

The calculation assumes consumption remains constant.

For contracts signed from 1 October 2024, principal terms must clearly display relevant broker fees for non-domestic customers. The supplier must also make this information available on request.

Ask for:

• The commission per kWh.
• Any commission included in the standing charge.
• The estimated annual commission.
• The estimated total over the full contract.
• Any separate broker or administration fees.

Read our guide to letters of authority and business energy brokers before allowing a broker to negotiate or accept terms for your business.

Factors to consider before choosing a contract length

The prices actually offered

Compare one, two, three, four and five-year prices where available.

A general preference for a short contract should not override an exceptionally competitive long-term offer. Equally, a desire for certainty should not justify accepting an excessive five-year price.

Expected business lifespan

Consider whether the business is likely to trade in its current form throughout the contract.

A long agreement can be risky for:

• Start-ups.
• Businesses considering closure.
• Companies preparing for sale.
• Sole traders approaching retirement.
• Organisations undergoing restructuring.

Commercial lease length

Do not sign an energy contract that substantially outlasts the expected occupation of the premises without understanding the termination provisions.

Moving out does not automatically produce identical results under every supplier’s contract.

Expected consumption

Consider whether energy use will increase or decrease because of:

• Business growth.
• Longer opening hours.
• New machinery.
• Additional employees.
• Electric heating.
• Air conditioning.
• EV charging.
• Solar panels.
• Battery storage.
• Energy-efficiency improvements.
• Site closures.

The less predictable the future consumption, the greater the risk of a very long fixed contract.

Financial certainty

Some companies place a high value on knowing the unit rate for several years.

This can be particularly important where energy forms a large proportion of the cost of providing the company’s products or services.

Ability to absorb price increases

A business with healthy margins may be comfortable accepting the renewal risk of a shorter contract.

A company with tight margins may prefer a longer agreement because a sudden increase in electricity or gas prices could threaten profitability.

Market expectations

Wholesale forecasts can help inform a decision, but they cannot guarantee future prices.

Unexpected weather, infrastructure failures, geopolitical events, currency movements and policy changes can all affect energy markets.

Supplier quality

A low five-year price may not be attractive if the supplier has poor billing, customer service or complaint-handling performance.

The longer the contract, the longer the potential exposure to service problems.

Credit position

Suppliers assess business credit risk when offering contracts.

A company with a weak credit score may receive:

• Higher prices.
• Shorter contract options.
• Security deposit requirements.
• More limited supplier choice.
• Different payment terms.

A new company with no trading history may also have fewer long-term options.

Contract terms

Price is only one part of the decision. Check:

• Early termination provisions.
• Change-of-tenancy rules.
• Rollover terms.
• Notice requirements.
• Payment method.
• Security deposits.
• Volume tolerance.
• Take-or-pay provisions.
• Pass-through charges.
• Broker fees.
• Metering obligations.

Should gas and electricity have the same contract length?

They do not have to.

Using matching lengths and end dates can make administration easier because both fuels can be reviewed together.

Potential advantages include:

• One renewal exercise.
• Easier budgeting.
• Fewer key dates to monitor.
• Potentially simpler multi-site management.
• Less chance of overlooking one fuel.

However, separate terms may be preferable where:

• Gas and electricity prices have different market outlooks.
• Different suppliers offer the best prices.
• Gas consumption is expected to decline.
• The business plans to replace gas heating.
• Electricity use is expected to increase.
• The existing contracts already have different end dates.

Do not accept a less competitive gas or electricity deal simply to keep both fuels with the same supplier.

Businesses can legally use separate gas and electricity suppliers.

How planned solar panels affect contract length

Installing solar panels can reduce the amount of electricity imported from the grid.

If a business expects to install a substantial solar system within the next one or two years, a five-year supply agreement based on current consumption may not be ideal.

Check:

• Whether the contract includes minimum volume requirements.
• How lower consumption affects broker commission.
• Whether exported electricity is handled separately.
• Whether battery storage will shift import times.
• Whether the supplier offers suitable import and export arrangements.
• How the solar installation affects half-hourly consumption data.

Read our guide to business solar panel costs and savings before forecasting future electricity demand.

How EV charging affects contract length

Workplace and fleet EV charging can materially increase electricity consumption.

A business planning to install several chargepoints should consider:

• The number and power of the chargers.
• Expected annual vehicle mileage.
• Charging times.
• Availability of off-peak rates.
• Existing supply capacity.
• Maximum Import Capacity.
• Potential network upgrades.
• Whether charging costs will be recovered from employees or customers.

A short contract may provide time to understand the new consumption profile before making a longer commitment.

Alternatively, a longer contract might protect the business if it can accurately forecast the additional demand and obtains a competitive tariff designed for overnight use.

Contract length for businesses planning to move

Businesses expecting to move should be especially cautious about long-term contracts.

Before signing, establish:

• Whether the contract ends when the business leaves.
• What evidence of a change of tenancy is required.
• Whether the supplier can transfer the agreement to the new premises.
• Whether termination fees can apply.
• What happens if the move is delayed.
• Whether the legal entity will remain the same.
• Whether the new premises have compatible meters.

Our guide to setting up business energy when moving premises explains the different arrangements.

Contract length for multi-site businesses

A multi-site organisation may have several possible approaches.

Align all end dates

Future contracts can be arranged to finish on the same date, making later procurement easier.

This may require using contracts of different initial lengths.

Stagger end dates

Staggering renewals reduces the risk of fixing the entire portfolio during one expensive market period.

For example, one-third of the portfolio could renew each year.

Use one contract length for every site

This is administratively simple but may not account for sites expected to open, close or change substantially.

Divide sites by risk

Stable sites could use longer agreements while uncertain or temporary locations use shorter contracts.

Large portfolios should consider the combined value at risk rather than making every decision meter by meter.

Should large businesses use fixed contracts?

Large and energy-intensive organisations may find that a simple fixed contract is not their only option.

Alternatives include:

• Flexible procurement.
• Tranche purchasing.
• Basket contracts.
• Indexed products.
• Pass-through arrangements.
• Corporate power purchase agreements.
• A mixture of fixed and flexible purchasing.

Flexible arrangements allow energy to be purchased at different times rather than fixing the entire requirement on one day.

They require more active management and do not guarantee a lower price. However, they can reduce the risk of making one purchasing decision at an unfavourable point in the market.

Read our energy procurement guide for large UK businesses for more information.

Is there a business energy price cap?

No general Ofgem energy price cap protects ordinary business energy contracts in the way that the domestic price cap protects households on standard variable tariffs.

A business agreeing a five-year contract is therefore accepting the commercial rate and terms offered by the supplier.

The business cannot assume that Ofgem will reduce its contractual price if the wider market subsequently becomes cheaper.

This makes it particularly important to compare quotes and understand the full commitment before signing.

Can you leave a fixed business energy contract early?

Usually, a business cannot leave simply because:

• Wholesale prices have fallen.
• Another supplier offers a cheaper tariff.
• The business regrets choosing a long term.
• The existing supplier’s customer service is disappointing.
• The company did not fully appreciate the commitment.

Possible routes out may include:

• A contractual break clause.
• An agreed early termination payment.
• A genuine change of tenancy.
• Closure of the premises.
• Supplier consent.
• Proven mis-selling or an invalid agreement.
• Material breach by the supplier.
• Insolvency arrangements.

The outcome depends on the contract and circumstances.

See our guide explaining whether a business can get out of an energy contract.

Do business energy contracts have cooling-off periods?

Most do not.

Ofgem’s switching guidance explains that most business energy contracts cannot be cancelled during the 14-day period that commonly applies to new domestic contracts.

A commercial energy agreement can also be binding when accepted over the telephone. A handwritten signature may not be required.

Before accepting any contract length:

• Request the principal terms in writing.
• Check the unit rate and standing charge.
• Confirm which costs can change.
• Read the full duration and end date.
• Check the broker commission.
• Examine the termination provisions.
• Confirm what happens if the business moves.
• Make sure the person agreeing has authority to bind the company.

Do not accept a five-year agreement on the assumption that it can be cancelled a few days later.

How to compare contract lengths fairly

Ask every supplier or broker to quote on the same basis.

Use:

• The same annual consumption.
• The same supply address.
• The same MPAN or MPRN.
• The same payment method.
• The same proposed start date.
• The same VAT and CCL treatment.
• The same meter information.
• The same approach to pass-through costs.

Record each quote in a table:

Supplier	Length	Unit rate	Standing charge	Extra charges	Annual cost	Full-term cost
Supplier A	1 year
Supplier B	2 years
Supplier C	3 years
Supplier D	5 years

Also compare non-price factors:

• Customer service.
• Billing frequency.
• Online account facilities.
• Renewable credentials.
• Metering support.
• Credit requirements.
• Contract flexibility.
• Broker support.
• Complaint handling.

For help identifying all the costs, see our business energy bill explanation.

A practical decision guide

Consider a one-year contract if:

• Your future consumption is uncertain.
• You expect to move premises.
• You are installing solar panels or EV chargers.
• You expect energy prices to fall.
• Flexibility is more important than long-term certainty.
• The one-year price is substantially cheaper.
• You are uncertain about the supplier.

Consider a two-year contract if:

• You want more certainty than a one-year agreement.
• You do not want a three or five-year commitment.
• The two-year quote offers the best annual cost.
• Operations are reasonably stable.
• You can tolerate reviewing the market again in two years.

Consider a three-year contract if:

• The business has predictable demand.
• The premises are secure.
• Budget certainty is important.
• The three-year rate is competitive.
• The business wants protection from price increases.
• The supplier and contractual terms are acceptable.

Consider a five-year contract if:

• Long-term certainty is the overriding priority.
• The business and premises are highly stable.
• Future consumption can be forecast confidently.
• The price is competitive against shorter alternatives.
• The company can tolerate missing future price reductions.
• The complete five-year financial commitment has been reviewed.

Common mistakes when selecting a contract length

Assuming longer means cheaper

A longer term may include a risk premium and can have a higher unit rate.

Looking only at the first year

Calculate the total value over the complete contract.

Ignoring planned operational changes

Solar panels, EV charging, new machinery and site moves can change consumption significantly.

Underestimating a small rate difference

Even 0.5p per kWh can cost thousands of pounds across a long, high-consumption contract.

Failing to check what is fixed

Some network, policy, capacity or metering charges may remain variable.

Ignoring broker commission

A commission uplift continues for every unit consumed throughout the agreement.

Believing the contract can easily be cancelled

Most commercial agreements are binding and do not include a cooling-off period.

Choosing the same term for gas and electricity automatically

The best duration and supplier may differ between the two fuels.

Focusing entirely on forecasts

Market forecasts can be wrong. The decision should also reflect the company’s risk tolerance and need for certainty.

Accepting over the telephone without written terms

Request and review the principal terms before agreeing.

Frequently asked questions

Compare fixed business energy contracts

Choosing a contract length involves balancing certainty against flexibility.

A shorter agreement allows the business to return to the market sooner but exposes it to the next set of renewal prices. A longer agreement protects the covered rates for several years but could become expensive if market prices fall or the company’s requirements change.

Before fixing for one, two, three or five years:

1. Compare prices for every available term.
2. Calculate the complete contract value.
3. Check which charges are genuinely fixed.
4. Forecast likely changes in consumption.
5. Review the premises and commercial lease.
6. Identify broker commission.
7. Read the termination and rollover terms.
8. Obtain the principal terms in writing.

If your existing contract is approaching its renewal date, compare prices for business energy tariffs across multiple suppliers and contract lengths. This can help you judge whether a shorter, medium or long-term agreement offers the most suitable balance of price, protection and flexibility.