Choosing the right commercial energy contract can have a major impact on monthly costs, cashflow predictability and long-term business budget planning. UK suppliers offer two broad categories of tariffs – fixed and variable – and each behaves differently when wholesale prices rise or fall. Our guide breaks down how both fixed vs variable structures work, what they cost, and when each suits a business.
Overview of fixed business energy tariffs
A fixed tariff locks in a unit rate for electricity and/or gas for a set contract term, usually 12–36 months. The standing charge may also be fixed, depending on the supplier.
Key characteristics
- Stable pricing: Unit rates do not change during the contract, regardless of wholesale movements.
- Typical contract length: 1–3 years; some suppliers offer 4–5 year terms.
- Early exit: Leaving early usually triggers an exit fee of £50–£300 per fuel for SMEs.
- Best for: Firms wanting predictable monthly budgets or those exposed to tight margins.
Typical fixed tariff prices in 2025
(Indicative UK SME averages)
| Consumption level | Electricity unit rate | Gas unit rate | Daily standing charge (elec) | Daily standing charge (gas) |
|---|---|---|---|---|
| Micro business | 27–33p/kWh | 7–9p/kWh | 55–75p | 25–45p |
| Small business | 25–31p/kWh | 6–8p/kWh | 40–65p | 22–40p |
| Medium business | 23–29p/kWh | 5–7p/kWh | 35–60p | 20–38p |
Rates vary by region, usage profile, credit rating and meter type.
Pros of fixed tariffs
- Budget certainty: Helps with forecasting, especially for high-consumption sectors.
- Protection from spikes: Wholesale price surges will not affect your unit rates.
- Easier procurement: Multi-year deals avoid annual renewal cycles.
Cons of fixed tariffs
- Locked-in pricing: You cannot take advantage of falling wholesale prices.
- Exit fees: Switching early can be costly.
- Higher starting price: Fixed deals sometimes carry a risk premium.
Overview of variable business energy tariffs
Variable tariffs, sometimes called “flexible” or “out-of-contract” tariffs, change their unit rates in line with wholesale costs. Most non-default variable tariffs are offered to larger businesses with half-hourly meters, but SME variable options also exist.
Key characteristics
- Price movement: Rates may change monthly or quarterly.
- Contract structure: Some variable tariffs have no formal term and no exit fees.
- Volatility: Costs can rise or fall quickly depending on market conditions.
- Best for: Firms comfortable with risk or those expecting falling wholesale prices.
Typical variable tariff prices in 2025
| Consumption level | Electricity unit rate | Gas unit rate | Notes |
|---|---|---|---|
| Micro business | 28–38p/kWh | 7–12p/kWh | Highest volatility; rates reviewed monthly. |
| Small business | 26–36p/kWh | 6–10p/kWh | Exposure to price surges in winter. |
| Medium business | 24–34p/kWh | 5–9p/kWh | Some suppliers offer caps or collars. |
Pros of variable tariffs
- Lower or no exit fees: Easier to move to a better deal.
- Potential savings: Beneficial when wholesale costs fall.
- Flexibility: Useful for short-term occupancy or seasonal operations.
Cons of variable tariffs
- Unpredictable costs: Harder to budget; vulnerable to seasonal spikes.
- Higher risk exposure: Winter wholesale prices can rise sharply.
- No protection: Businesses bear full market volatility.
Cost comparison: fixed vs variable business energy tariffs in practice
Example 1 – typical small business
- Annual electricity usage: 20,000 kWh
- Annual gas usage: 16,000 kWh
Fixed tariff cost (example):
- Electricity at 28p/kWh → £5,600
- Gas at 7p/kWh → £1,120
- Standing charges → £380
Total annual cost: ~£7,100
Variable tariff cost (example):
- Electricity average 31p/kWh → £6,200
- Gas average 8.5p/kWh → £1,360
- Standing charges → £350
Total annual cost: ~£7,910
Outcome: Fixed is cheaper if wholesale prices climb.
Example 2 – falling wholesale market
Assume a business enters at a time when the market is softening and average variable prices drop by 10% over the year.
- New electricity average: 27.9p/kWh
- New gas average: 7.65p/kWh
This could save £400–£600 per year versus a fixed deal.
Outcome: Variable is cheaper in a declining market.
When should a business choose a fixed tariff?
A fixed tariff is likely to be the better option when:
- You want stable monthly costs for cashflow management.
- You operate in a high-consumption sector such as manufacturing, hospitality or retail.
- You believe wholesale energy prices are more likely to rise.
- You prefer long-term procurement stability.
When should a business choose a variable tariff?
A variable tariff may be suitable when:
- You expect wholesale prices to fall or remain stable.
- You have short-term premises, such as pop-ups or interim locations.
- You prefer to avoid exit fees.
- You are comfortable with volatility.
Additional considerations
Business size and meter type
- Firms with half-hourly meters can access more sophisticated flexible purchasing options.
- SMEs usually face simpler variable tariffs with less customisation.
Credit rating
- A stronger credit score often gives access to cheaper fixed rates.
Multi-site portfolios
- Some business energy suppliers offer portfolio fixed rates or blended contracts, allowing mixed fixed and variable positions.
Market timing
- Wholesale costs shift daily; using a comparison tool like EnergyCosts.co.uk helps businesses access live rates from multiple suppliers.
Conclusion: fixed vs variable business energy tariffs
Fixed tariffs offer certainty and protection from spikes, while variable tariffs provide flexibility and potential savings when the market weakens. The best choice depends on your risk tolerance, consumption profile and contract goals. Businesses seeking predictable budgeting tend to favour fixed rates, whereas firms that understand and can manage volatility may benefit from variable pricing during stable or falling markets.
If you want accurate quotes tailored to your usage, sector and postcode, comparing live business energy tariffs remains the most reliable route to securing the best deal.