Is a pass-through business energy contract risky?

A pass-through business energy contract can be risky, but it is not automatically a bad deal. The main issue is that the business takes on more exposure to changes in third-party energy costs, instead of paying a fully fixed price where the supplier absorbs or prices in those risks.

The short answer is: yes, a pass-through business energy contract can be risky if the business wants budget certainty, does not understand the charges being passed through, or is exposed to rising network and policy costs. However, it can also be suitable for larger or more energy-aware businesses that want transparency and are willing to accept variable costs.

What is a pass-through business energy contract?

A pass-through business energy contract is an energy contract where some costs are passed directly from the supplier to the customer at actual or updated rates.

In a fully fixed contract, the supplier usually estimates future costs and builds them into the agreed unit rate and standing charge. In a pass-through contract, some of those costs can move during the contract.

Contract type	How it works	Main benefit	Main risk
Fully fixed	Unit rate and standing charge are fixed for the contract period, subject to the contract terms	Budget certainty	Supplier may price in a risk premium
Part pass-through	Some costs are fixed, while others can change	Balance between certainty and transparency	Unexpected bill increases
Fully pass-through	Third-party charges are billed at actual or updated cost	More transparent cost breakdown	Less budget certainty
Flexible procurement	Wholesale energy may be bought in tranches, with other costs treated separately	Can suit large users with active energy management	Requires expertise and monitoring

Pass-through contracts are more common among larger businesses, half-hourly metered sites, multi-site organisations and companies using energy consultants or brokers. Smaller businesses may also encounter them, but they need to be especially careful because the risk can be harder to manage without specialist advice.

What costs can be passed through?

The costs passed through vary by supplier and contract. The most common pass-through items are non-commodity charges.

Non-commodity charges are the parts of an energy bill that are not the wholesale cost of the electricity or gas itself. They include network costs, balancing costs, environmental scheme costs and policy-related charges. Ofgem says business energy bills cover wholesale energy costs, network costs and environmental costs, and that wholesale costs can typically be around 40% of a business electricity bill and around 60% of a business gas bill, although the exact percentages vary.

Charge	Full name	What it pays for	Risk in a pass-through contract
TNUoS	Transmission Network Use of System	High-voltage electricity transmission network	Can rise significantly from year to year
DUoS	Distribution Use of System	Local electricity distribution networks	Varies by region, voltage and usage profile
BSUoS	Balancing Services Use of System	Day-to-day electricity system balancing	Can change with system conditions
RO	Renewables Obligation	Support for older renewable generation schemes	Policy cost exposure
FiT	Feed-in Tariff	Support for small-scale renewable generation	Legacy scheme cost exposure
CfD	Contracts for Difference	Support for low-carbon generation	Can move depending on scheme costs
Capacity Market	Capacity Market charge	Security of electricity supply	Can be passed through depending on contract
Nuclear RAB	Nuclear Regulated Asset Base	Funding model for new nuclear infrastructure	Newer bill component risk
Metering and data	Meter operator and data services	Metering, data collection and settlement	May vary by site and supplier
Broker or management fee	Energy broker or consultant costs	Procurement and account management	May be added separately or built into rates

Not every pass-through contract passes through all of these items. The key point is that the contract must be checked line by line.

Why pass-through contracts feel riskier in 2026

Pass-through contracts are more risky when third-party costs are rising. That is exactly the concern for many businesses in 2026.

Cornwall Insight forecast that by 2026, non-commodity charges would make up nearly 60% of a typical business electricity bill, driven by rising transmission costs, new bill components such as the Nuclear Regulated Asset Base, and widening exemption schemes for energy-intensive users.

This means a business could secure a good wholesale electricity price but still see its overall bill rise because the pass-through elements increase.

TNUoS is the clearest example

TNUoS is one of the most important pass-through risks in 2026. It pays for the high-voltage transmission network that moves electricity around Great Britain.

NESO publishes TNUoS tariffs, including final TNUoS tariffs for 2026/27. Industry commentary around the 2026/27 tariffs points to a sharp increase in transmission charges, making TNUoS a major concern for businesses on contracts where the cost is passed through.

Annual electricity use	Extra cost from a £10/MWh increase
25,000kWh	£250 per year
50,000kWh	£500 per year
100,000kWh	£1,000 per year
250,000kWh	£2,500 per year
500,000kWh	£5,000 per year
1,000,000kWh	£10,000 per year
5,000,000kWh	£50,000 per year

This is a simplified example. Actual TNUoS exposure depends on meter type, location, voltage level, site capacity, charging band and contract structure.

Why a pass-through contract can be attractive

A pass-through contract is not always worse than a fixed contract. The main advantage is transparency.

A fully fixed supplier contract usually includes a forecast for future third-party charges. If the supplier expects costs to rise, it may include a risk premium. A pass-through contract can avoid some of that premium because the business agrees to pay the actual cost instead.

Potential benefit	What it means
More transparency	The business can see more of the underlying cost stack
Lower supplier risk premium	Supplier does not need to price every future cost movement into the quote
Possible savings if charges fall	If pass-through charges are lower than forecast, the business may benefit
Better for large users	Bigger businesses may have the data and expertise to manage variable costs
More accurate billing	Costs may reflect actual site characteristics more closely
Useful for flexible procurement	Larger buyers can separate wholesale buying from non-commodity cost management

For a large manufacturer, warehouse group, cold storage business or multi-site retailer, a pass-through contract can make sense if the company has a finance team, broker or energy consultant monitoring the charges.

Why a pass-through contract can be risky

The risk is that the business may not know its true annual cost when it signs.

A supplier or broker might quote a low headline unit rate, but the final bill can rise if pass-through charges increase. This can make the contract difficult to compare with fully fixed offers.

Risk	Why it matters
Budget uncertainty	The final annual cost may be higher than expected
Rising network charges	TNUoS and DUoS increases can feed through
Policy cost exposure	RO, FiT, CfD, Capacity Market and other scheme costs may change
Complicated invoices	Bills may be harder to check and forecast
Poor quote comparison	A low unit rate may hide variable extras
Reconciliation charges	Supplier may adjust costs later, creating catch-up bills
Broker misunderstanding	Some brokers may not clearly explain what is fixed and what is variable
Cash-flow pressure	Unexpected increases can affect monthly budgeting

Ofgem advises businesses not to feel pressured into signing energy contracts, to check terms and fees beforehand, and to ask for phone-discussed contracts in writing before agreeing.

Pass-through versus fixed contracts

Feature	Fully fixed contract	Pass-through contract
Budget certainty	Higher	Lower
Transparency	Lower to medium	Higher
Supplier risk premium	Usually higher	Usually lower
Exposure to charge increases	Lower, depending on contract	Higher
Ability to benefit from charge reductions	Lower	Higher
Invoice complexity	Usually simpler	More complex
Best suited to	SMEs wanting certainty	Larger or energy-aware businesses
Main danger	Paying too much for supplier risk premium	Underestimating future charges

A fully fixed contract can be more expensive at the start, but it gives the business a clearer budget. A pass-through contract can look cheaper at the start, but it may become more expensive if third-party costs rise.

Example: fixed versus pass-through quote

A business uses 250,000kWh of electricity per year.

Item	Fixed contract	Pass-through contract
Quoted unit rate	29p/kWh	26p/kWh
Initial annual usage cost	£72,500	£65,000
Initial saving	—	£7,500
Extra pass-through costs later	£0	£9,000
Final annual cost	£72,500	£74,000

In this example, the pass-through contract looks £7,500 cheaper at the quote stage, but ends up £1,500 more expensive after charges increase.

The opposite can also happen. If the supplier’s fixed quote includes a large risk premium and actual pass-through charges come in lower than expected, the pass-through contract could be cheaper.

Which businesses are most at risk?

Pass-through contracts are riskiest for businesses that need predictable costs or do not have time to monitor the energy market.

Business type	Risk level	Why
Small office	High	Limited expertise and low tolerance for bill surprises
Café or restaurant	High	Margins are tight and energy costs are already volatile
Small retailer	High	Standing charges and fixed costs can have a large effect
Care home	Medium to high	High consumption and need for stable budgeting
Hotel	Medium to high	Large usage across heating, hot water, kitchens and laundry
Warehouse	Medium	Risk depends on lighting, HVAC, refrigeration and EV charging
Manufacturer	Medium	May have enough usage to benefit, but exposure can be large
Cold storage site	Medium to high	High continuous electricity use magnifies charge increases
Multi-site group	Medium	Can benefit from transparency but needs active management
Large half-hourly user	Lower to medium	Often has broker, consultant or internal energy expertise

A pass-through contract is rarely ideal for a small business that simply wants to know what it will pay each month.

When a pass-through contract may be suitable

A pass-through contract may be worth considering if the business:

• uses a large amount of electricity
• has half-hourly metering
• understands non-commodity charges
• has an energy consultant or experienced broker
• can tolerate bill variation
• wants a transparent breakdown of costs
• has good consumption data
• can forecast and budget for variable charges
• is comparing offers on total estimated annual cost
• has reviewed the worst-case scenario

It may also suit organisations with energy procurement policies that separate wholesale purchasing from regulated and third-party charges.

When a pass-through contract may be unsuitable

A pass-through contract may be unsuitable if the business:

• needs fixed monthly costs
• has tight cash flow
• does not understand TNUoS, DUoS, BSUoS or policy charges
• is comparing only headline p/kWh rates
• does not receive proper cost forecasts
• has no time to check invoices
• has no broker or consultant support
• is a small business with low energy expertise
• cannot absorb a sudden increase
• is already struggling with energy debt

Ofgem says suppliers may require security deposits where there are greater risks of businesses defaulting on payment, and that suppliers are not obliged to offer businesses a contract. This makes it even more important for businesses to understand the terms before signing.

The role of brokers

Brokers can be useful when comparing fixed and pass-through contracts, but the quality of advice varies.

Ofgem announced new rules in 2024 intended to give businesses fairer treatment, more support resolving disputes and greater transparency on broker fees. The Energy Ombudsman also reported that 1,952 brokers were registered with its broker ADR scheme by the end of 2025, with 980 cases accepted during the reporting period, showing that broker-related disputes remain a real issue in the market.

Before signing a pass-through contract through a broker, the business should ask:

Question	Why it matters
Which charges are fixed?	Confirms what is protected
Which charges are passed through?	Identifies variable-cost exposure
Are forecasts included?	Shows likely annual cost
What assumptions are used?	Helps test whether the quote is realistic
Are charges reconciled later?	Warns of possible catch-up invoices
How is the broker paid?	Reveals commission or fees
Is commission included in the unit rate?	Prevents hidden cost surprises
What happens if TNUoS rises?	Tests the main 2026 risk
Can the quote be compared with a fully fixed alternative?	Enables a fair decision
What support is available after signing?	Important for invoice checking

A broker who cannot clearly explain the difference between fixed and pass-through costs is a warning sign.

What does “fixed” actually mean?

A major problem in business energy is that “fixed” can mean different things.

Phrase	Possible meaning
Fixed unit rate	The p/kWh rate may be fixed, but other charges may still vary
Fixed wholesale rate	Only the energy purchasing element is fixed
Fixed non-commodity	Third-party charges are included and fixed
Fixed standing charge	The daily standing charge is fixed
Fixed for budget purposes	Supplier may still reconcile certain charges
Fully fixed	Usually means both energy and agreed third-party charges are fixed, subject to contract terms

Businesses should not rely on a sales description. They should check the contract wording.

What should be in a good pass-through quote?

A good pass-through quote should show more than a headline unit rate.

Quote item	Why it is important
Estimated annual consumption	Basis for the forecast
Meter type and profile	Affects charges
Region and distribution area	DUoS and network costs vary by region
Unit rate	Commodity or energy element
Standing charge	Fixed daily cost
TNUoS estimate	Major network cost exposure
DUoS estimate	Regional distribution cost exposure
BSUoS estimate	Balancing cost exposure
Policy cost estimates	RO, FiT, CfD and Capacity Market
Reconciliation terms	Whether costs can be adjusted later
Broker commission	Total cost of intermediary service
Worst-case sensitivity	What happens if charges rise
Total estimated annual cost	Best basis for comparison

Without this information, it is difficult to know whether the contract is genuinely competitive.

Worked example: impact of pass-through increases

A business signs a pass-through electricity contract and uses 500,000kWh per year.

Cost increase	Extra annual cost
TNUoS rises by £10/MWh	£5,000
DUoS rises by 0.75p/kWh	£3,750
BSUoS rises by 0.3p/kWh	£1,500
Policy costs rise by 0.8p/kWh	£4,000
Standing charge rises by £3/day	£1,095
Total extra cost	£15,345

This shows why pass-through contracts can be risky for high-usage businesses. Even relatively small p/kWh changes can become large annual costs.

How to reduce the risk

Ask for fixed and pass-through quotes

Do not assess a pass-through offer in isolation. Ask for a fully fixed version, a part pass-through version and a full pass-through version so the trade-off is clear.

Compare total annual cost

A low unit rate does not necessarily mean a low bill. Compare the estimated annual cost including standing charges, non-commodity charges, VAT, CCL and broker commission.

Request a sensitivity table

Ask what the annual bill would look like if non-commodity charges rose by 5%, 10%, 20% or more.

Check reconciliation terms

Some contracts allow suppliers to reconcile estimated charges against actual charges later. This can create unexpected debit notes or catch-up bills.

Understand TNUoS treatment

In 2026, TNUoS is one of the most important risks. Ask whether TNUoS is fixed, forecast, reconciled or fully passed through.

Check broker commission

Broker commission can be charged as a p/kWh uplift, a separate fee, or a supplier-paid commission. The business should know the amount and how it is recovered.

Monitor invoices

Pass-through contracts require more invoice checking than simple fixed contracts. If a business does not check bills, errors or unexpected charges may go unnoticed.

Build a contingency budget

A business choosing pass-through pricing should budget for upside risk. Treat the quote as an estimate, not a guaranteed total cost.

Review supply capacity

For larger sites, agreed capacity can affect network charges. If the site has more capacity than it needs, it may be paying avoidable fixed costs.

Use regular meter data

Good consumption data makes forecasting more accurate. Half-hourly data can help identify peak demand and operational changes.

What if the contract was mis-sold?

If a business was told a contract was fixed but later discovers major charges were passed through, it should gather evidence and complain.

Useful evidence includes:

• signed contract
• quote sheet
• broker emails
• call recordings, if available
• supplier welcome pack
• invoices
• renewal letters
• meter data
• commission disclosure
• any written promise that prices were fixed

Small businesses have been able to access the Energy Ombudsman’s independent dispute resolution services for disputes with suppliers since 19 December 2024, subject to eligibility criteria including fewer than 50 employees and turnover or balance-sheet thresholds.

Is pass-through better for gas or electricity?

Pass-through risk is usually more significant for electricity than gas because electricity has more network, balancing and policy-related costs.

Cost area	Electricity	Gas
Wholesale commodity	Major cost	Major cost
Transmission and distribution	Significant	Significant but different structure
Balancing	Significant	Present but usually less visible
Low-carbon policy schemes	More extensive	Less extensive
Capacity Market	Yes	No
Non-commodity complexity	Higher	Lower

For electricity contracts in 2026, pass-through exposure can be particularly important because non-commodity charges are a large and rising share of the bill.

Is a pass-through business energy contract risky?

A pass-through business energy contract is risky if the business does not understand what is being passed through or needs predictable monthly costs. The risk is especially important in 2026 because non-commodity electricity charges are a large share of business bills and some network costs have risen sharply.

However, pass-through pricing is not automatically bad. It can be transparent and sometimes cheaper than a fully fixed contract, especially for larger businesses that can monitor charges, manage budgets and compare offers properly.

The safest approach is to ask one simple question before signing: what is fixed, what is variable, and what happens if third-party charges rise?

If the supplier or broker cannot answer that clearly in writing, the contract is probably too risky.

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