UK businesses are being advised to consider longer-term fixed-price commercial electricity contracts instead of cheaper 12-month deals, according to an energy price comparison specialist.
The Energy Advice Line said that while two and three-year energy contracts were generally more expensive in the short term, “significant” savings were likely to be made over the longer term as business energy prices are expected to continue rising.
Julian Morgan, managing director of the company, said most firms opted for fixed-term contracts of one year because they were cheaper than two or three-year deals, yet they risked losing money by doing this.
Data shows that in the first quarter last year, 75% of customers went for 12-month contracts as they were the cheapest price at an average of 9.58p/kWh for the quarter.
But because business electricity prices have risen by 15% in that time, customers who locked into these cheapest deals would have been better off paying a premium and opting for longer-term contracts.
“These customers are now coming back onto the market because their 12-month deals have ended to find that business electricity prices are now 15% higher,” said Morgan.
He added that a customer who had taken out a two-year contract at the start of 2012 would have paid 6.7% more for their electricity than if they took out a 12-month contract.
But as prices have since risen by 15% between now and then, the business would have recouped this and enjoyed the security of knowing their energy bills would not rise for a further year.
If the customer had agreed to a three-year contract, the savings could prove to be even more significant with business electricity prices expected to rise further.
“This isn’t about the benefit of hindsight, it’s about considering all the options and not just signing up to the cheapest short-term deal,” said Morgan. “We are strongly advising all our customers to consider the longer-term options, and our team can provide details about the various products available.”
He concluded: “The longer-term options will be slightly more expensive but the analysis from 2012 has proved that this might be the way to go in a rising market, and afford businesses greater price protection for longer.”