Energy Termination

Business Energy contracts and the dangers of early termination fees

We have all been there. You agree to a new energy contract and in the build up to it going live you come across a new deal with a different supplier that is cheaper, and you feel, a better fit for your business.

The previous contract that you signed up to has not gone live yet, so it is perfectly normal to assume you can go ahead with the new deal without any ramifications.

However, in the current economic climate, this is riskier than you might think.

In the following piece, we will discuss how the impact of COVID-19, nationwide business closures and recent support from regulatory bodies such as OFGEM has brought about a change in behaviour for many energy suppliers.

Why can a supplier charge me termination fees for a contract that has not gone live?

For those of you who have read the small print in the terms and conditions of your energy contracts, you will be aware that every supplier has a clause that enables them to recover losses and associated costs with contracts not going live – the majority just don’t enforce it.

What has become evident in recent months, however, is that this all looks set to change.

Why are suppliers now starting to charge fees?

Like all industries, the business energy sector has suffered due to the ongoing COVID-19 pandemic.

With many UK businesses shutting down their workplaces and migrating to home working solutions, energy suppliers who specialise in business solutions are having to cope with the unenviable combination of falling revenue streams whilst having to maintain Transmission Use of System (TUOS) charges and CPD levy payments to the government.

Remember, energy suppliers will have to resell the gas and electricity to the market if a contract is cancelled and does not go live. In a situation like this, it is not surprising that suppliers will look to recoup some of this loss and pass it on to the customer.

Whilst previously a supplier might not have found such a process worthwhile, the current economic climate means it is now very much in their interest.

Can I not appeal?

Numerous businesses have appealed the charges via OFGEM, which you are more than entitled to do. However, due to the terms and conditions of energy contracts, in recent months we have seen OFGEM uphold charges and rule in the favour of the supplier in the majority of cases.

What should I do moving forward?

Our advice moving forward would be, if you have signed and agreed an energy contract, you should stick with it. Depending on the size of your business, and the supplier you are with, termination charges could negate any savings you would make from signing up to a slightly cheaper tariff with another supplier.

The size of the charges depends solely on the size of your contract, however, in some cases we have seen suppliers charge up to 50% of the estimated contract value.

As with anything, do not just sign up to the first deal you see. Always speak to an energy consultant first. Allow them to scour the market on your behalf and find the best possible deals before signing on the dotted line, you will thank yourself in the future.

For the latest business news and advice, plus informative tips on how to navigate your business through these troubling times, please visit our dedicated business and COVID-19 support.

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Paul JohnsonGroup Financial Director

About Paul

Paul Johnson is very much a home-grown talent.

He joined Great Annual Savings Group in its infancy, fresh from a youth career as a professional footballer with Hartlepool United.  He quickly established a reputation within the business and aced all required accountancy qualifications in the space of four years to become the Group’s Management Accountant.

Several successful projects later, Paul was promoted to Head of Finance.  When the former FD left GAS, he took on the mantle of the business’ most senior finance professional; boasting a string of incredible achievements all under the age of 30.