Energy is one of those costs that’s easy to ignore until it isn’t. You sign a contract, forget about it for a year or two, and then the renewal letter lands and suddenly it’s the biggest line on your outgoings. Picking between a fixed and a variable tariff is one of the few energy decisions where a bit of upfront thought genuinely pays off — so let’s get into it.
The basics
A fixed tariff locks in your unit rate (what you pay per kWh) and usually your standing charge too, for the length of your contract — typically one to three years, sometimes up to five. Whatever happens in the wholesale market during that time, your rate doesn’t move. Your total bill can still change month to month, because it’s driven by how much energy you actually use — but the price you pay for each unit stays put.
A variable tariff does the opposite. Your unit rate moves with the wholesale market, sometimes reviewed monthly, sometimes more often. If wholesale prices fall, you benefit. If they spike, so does your bill, with little warning.
There’s also a middle ground — sometimes called a flexible or structured contract — where part of your usage is fixed and the rest tracks the market. These are mostly aimed at higher-consumption businesses with the resource to manage them actively, so most smaller operators won’t come across them.
Who tends to suit a fixed tariff
- Businesses that need to budget with certainty. If energy is a meaningful chunk of your costs and you’re pricing jobs, products or services months in advance, knowing your unit rate isn’t going to move is worth a great deal.
- Smaller businesses without the time to watch the market. Managing a variable contract properly means keeping an eye on wholesale trends and being ready to act. Most owner-operators have better things to do.
- Anyone who’s been burned before. If you lived through the volatility of recent years, the appeal of a rate that simply can’t spike on you is obvious.
- Businesses applying for finance or working to tight margins. Lenders and investors like predictability, and a fixed energy cost is one less variable to explain away.
The trade-off is that you lose out if wholesale prices fall during your term — you’re locked in at your rate either way.
Who might suit a variable tariff
- Businesses that can absorb a bad month without it hurting. If energy is a small share of your overall costs, the downside of a price spike is manageable.
- Those with genuine market expertise, in-house or via a broker, who can watch pricing trends and switch or hedge when it makes sense.
- Businesses wanting short-term cover, for example while shopping around for a better fixed deal rather than settling for a rushed one.
For most small and medium businesses, though, the case for going variable is thin right now. The potential upside — catching a dip in wholesale prices — is smaller than the potential downside of an unexpected rise, and most owners don’t have the bandwidth to actively manage it.
A few things worth checking, whichever way you lean
- What happens at the end of your contract. Left unrenewed, most suppliers roll you onto a standard variable “out of contract” rate, and these are almost always far more expensive than anything you’d negotiate directly. Put a reminder in your diary well before your renewal date.
- Exit fees. Fixed contracts usually carry a penalty for leaving early, calculated against your remaining term and estimated usage. Worth knowing before you sign, not after.
- Standing charges, not just unit rates. Some deals look attractive on the unit rate but claw it back through a higher daily standing charge. Compare the whole package.
- Your consumption profile. Lower users tend to do best on a straightforward fixed deal. Higher users have more options, including blended fixed/variable structures, and more reason to get proper broker advice before signing.
The practical takeaway
If you value knowing exactly what your energy will cost and want one less thing to worry about, a fixed tariff is generally the safer default — particularly for smaller businesses without the time or appetite to track the wholesale market. A variable tariff only really makes sense if you have a specific reason to expect prices to fall, and the financial cushion to cope if they don’t.
Either way, the worst outcome is doing nothing and drifting onto a rollover rate. Whatever you choose, choose it deliberately — and get it in the diary for when the contract’s up.