Pass‑Through vs Fully Fixed Energy Contracts

Both models offer benefits, but suit different risk appetites. This guide breaks down how each type of business energy contract works, what you’re actually paying for, and how to choose the best fit for your operations.

What is a Fully Fixed Energy Contract?

A fully fixed contract locks in the entire cost of your business electricity and gas for the duration of the agreement, which is usually 1 to 3 years. This model sets a single per kWh rate that covers:

1. Wholesale energy

2. Third‑party costs (network charges, green levies and balancing charges)

3. Supplier admin

4. Standing charges

Once fixed, your unit rate cannot be changed, even if non‑commodity costs rise during the contract term.

Who is a Fully Fixed Deal Suitable For?

• Businesses needing cost certainty

• Companies with tight budgets

• Caregivers, childcare businesses, and public‑facing organisations where surprise bills are a concern

• Businesses that don’t want to monitor market changes

• Companies managing complex internal approval processes

Pros

• Complete price stability

• Easier forecasting and budgeting

• Minimal admin

• No surprises in your monthly bill

Cons

• You pay a risk premium

• No benefit if wholesale prices fall

• Less transparency over cost breakdowns

What is a Pass-Through Energy Contract?

A pass‑through contract separates your business gas and electricity bill into two parts:

1. Fixed costs: often the wholesale rate

2. Pass‑through costs: variable third‑party charges that may change throughout the contract term

These variable elements can include:

• Transmission and distribution costs

• Capacity and balancing charges

• Environmental levies

• Metering and industry charges

• System losses

• Supplier admin

Who is a Pass-Through Deal Suitable For?

• Businesses comfortable with monthly fluctuations

• High‑energy users with the flexibility to shift usage

• Businesses wanting more in-depth cost visibility

• Companies with sustainability goals and the ability to manage peak‑time consumption

• Large multi‑site operations with energy management systems

Pros

• Potentially lower bills if charges fall

• Transparency over industry costs

• The flexibility to respond to market signals

• Often cheaper than fully fixed

Cons

• Bills fluctuate month‑to‑month

• Difficult to forecast annual budgets

• Exposure to volatile non‑commodity charges

• You must actively monitor usage and markets

Pass-Through vs Fully Fixed: Side-by-Side

Are Pass-Through or Fully Fixed Contracts Cheaper?

Unfortunately, there’s no universal cheap option. The costs your business would pay with each type of energy tariff depend entirely on timing and how markets change.

Fully fixed contracts may be cheaper when:

• Non‑commodity charges are expected to rise

• Market volatility is high

• You secure your rate during a dip

Pass‑through contracts may be cheaper when:

• Wholesale markets are stable or falling

• You can manage peak usage

• You’re willing to accept an element of risk

How Do Market Conditions Affect Each Contract Type?

Volatile Conditions

• Fully fixed protects you from spikes

• Pass‑through leaves you exposed to increases in non‑commodity costs

Stable Conditions

• Fully fixed includes a premium

• Pass-through rewards you with lower monthly charges

Falling Markets

• You may feel trapped with fully fixed

• Pass-through allows savings in this scenario

What Should Businesses Consider Before Choosing?

Here are the key questions to ask yourself before making a decision:

1. What is my risk appetite?
   If volatility unsettles your budgeting, avoid pass‑through.

2. How predictable is my energy usage?
   Consistent users benefit more from fixed.

3. Do I have energy‑intensive operations?
   Pass‑through may enable cost‑saving.

4. Do I have the time to monitor markets?
   Pass‑through requires active management.

5. Am I tendering for fixed‑price contracts?
   Fully fixed is typically safer.

Should I Choose a Pass-Through or a Fully Fixed Tariff?

If your business values simplicity, certainty and a stable budget, a fully fixed contract is the safe, predictable option. If you’re comfortable managing some volatility and want transparency or the potential for savings, a pass‑through contract could work well, especially if your operations move with market conditions.

Both models can work well when matched to the right type of business. If you want a hybrid approach, some suppliers offer partially fixed contracts, providing a middle ground for business customers.