Introduction

When managing energy costs for your business, choosing the right type of energy contract is crucial. Among the most common options are fixed and variable energy contracts. Each has its advantages and potential drawbacks, and understanding the difference can save your company thousands annually.

This guide will explain the key differences, who each contract is suitable for, and how to choose the right option based on your risk tolerance and budgeting needs.

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🔒 What is a Fixed Energy Contract?

A fixed energy contract locks in a unit price (measured in pence per kWh) for electricity or gas over a set term—typically between 1 and 3 years. The total amount you pay still depends on usage, but the price per unit remains stable throughout the contract period.

✅ Key Features of Fixed Contracts:

• Price per unit remains the same for the duration of the contract.
• Easier budgeting due to predictable bills.
• Ideal for businesses wanting long-term price certainty.

❌ Drawbacks:

• You won’t benefit if market prices fall.
• May include early termination fees.
• Less flexibility for contract changes.

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🔄 What is a Variable Energy Contract?

A variable energy contract, also called a flexible or rolling contract, means the unit price of your energy can change—going up or down—depending on wholesale market rates.

✅ Key Features of Variable Contracts:

• Price fluctuates with the market.
• Can benefit from falling energy prices.
• Often no fixed-term commitment or exit fees.

❌ Drawbacks:

• Prices can spike unexpectedly.
• Harder to predict and budget for energy bills.
• Riskier for high-usage businesses.

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🆚 Key Differences Between Fixed and Variable Contracts

Feature	Fixed Contract	Variable Contract
Price Per Unit	Locked for the contract term	Changes with market fluctuations
Budgeting	Easier, due to fixed rates	Harder, due to unpredictable bills
Flexibility	Less flexible; early exit may cost	More flexible; usually no exit fees
Market Dependency	Protected from price hikes	Exposed to market volatility
Best For	Businesses with steady energy needs	Risk-tolerant businesses or short-term

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💡 Which One Is Right for Your Business?

Choosing between fixed and variable contracts depends on your:

• Budget Certainty Needs: If you prefer stability, a fixed contract is the safer choice.
• Risk Tolerance: A variable contract might save you money if market prices fall, but can also cost more if they rise.
• Contract Duration Preferences: Fixed deals often come with a 1–3 year term, while variable tariffs offer more flexibility.

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📈 Energy Market Trends in 2025

The UK energy market continues to face price fluctuations due to global supply issues, demand surges, and government regulations. In such an environment, fixed contracts are becoming more attractive for businesses that want protection from potential spikes. However, for those that can monitor the market actively, variable contracts can still offer opportunities for savings.

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⚖️ Pros and Cons Summary

Fixed Energy Contracts

Pros:

• Price stability
• Predictable bills
• Easier planning

Cons:

• Can’t take advantage of falling prices
• Contract terms often strict

Variable Energy Contracts

Pros:

• Potential to save when prices fall
• Flexible exit terms

Cons:

• Budget unpredictability
• Higher risk during energy crises

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✅ Frequently Asked Questions (FAQs)

❓1. Can I switch from a variable to a fixed contract anytime?

Yes, many suppliers allow you to switch if you’re on a variable contract, often without any exit fees.

❓2. Are fixed contracts always cheaper in the long run?

Not always. They offer stability, but if market prices drop significantly, you might pay more than on a variable tariff.

❓3. Can small businesses choose either type?

Yes, both small and large businesses can choose between fixed or variable energy contracts based on their usage and preferences.

❓4. What happens when my fixed contract ends?

You’ll usually roll over to a variable or out-of-contract tariff unless you renegotiate or switch suppliers.

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✅ Conclusion

Understanding the difference between fixed and variable energy contracts is essential for controlling your business energy costs. If you value stability and long-term planning, a fixed tariff is your best bet. On the other hand, if you’re comfortable with some risk and want to take advantage of market lows, a variable tariff may suit your business.

At FMG Energy Solutions Ltd, we help UK businesses compare both types of contracts to find the best deal. Contact us today for a free consultation and quote.