Why UK Small Businesses Are Turning to Fixed-Price Energy Contracts

For the first time in four years, small business owners renewing an energy contract are being quoted prices lower than the ones they are leaving behind. Non-domestic electricity averaged 24.14p per kilowatt hour in the first quarter of 2026, a fall of 6.2 per cent on the same period a year earlier. Gas averaged 5.17p per kilowatt hour, down 6.7 per cent. After a period in which energy was the fastest-rising line item on most small business accounts, that is a meaningful shift.

It has not, however, produced a rush of confidence. Talk to any independent retailer, bakery or workshop owner and the reaction to falling prices is caution rather than relief. Prices are down from a genuinely extraordinary peak, not down to where they were before it. And the structure of the non-domestic market means the headline average tells an individual business relatively little about what it will actually be offered.

Why the average is misleading

Domestic customers are protected by a price cap. Non-domestic customers are not. A business energy contract is a bilaterally negotiated deal, and the spread between the best and worst rates available to two otherwise identical firms on the same day can be substantial. Consumption volume matters, contract length matters, credit assessment matters — and so does the route through which the contract was arranged.

That last factor has become the central policy question. Ofgem ran a market review of third-party intermediaries between 4 June and 16 July 2026, examining how brokers and consultants are remunerated and whether small businesses understand what they are paying for. The practical issue is that broker commission is frequently built into the unit rate rather than charged separately, so a firm comparing two quotes may be comparing two different commission structures without knowing it.

The case for fixing, and against it

Fixed-price contracts have become the default preference for smaller firms, and the reasoning is more about planning than optimisation. A cafe operating on thin margins needs to know its energy cost for the next twelve months in order to price a menu. The possibility of saving a few per cent on a variable rate is worth less than the certainty of not absorbing a sudden increase.

The counter-argument is straightforward: fixing now locks in prices that remain historically elevated. If wholesale costs continue easing through 2027, a three-year fix agreed in 2026 could look expensive by its midpoint. The compromise many advisers suggest is a shorter fix — twelve to eighteen months — which provides budgeting certainty without committing to a long horizon at what may prove to be an unfavourable moment.

Detailed quarterly figures for the non-domestic sector are published by government in the gas and electricity prices statistical collection, broken down by consumption band. Checking your own band rather than the overall average is the single most useful thing a business can do before a renewal conversation, because the gap between the smallest and largest consumer bands is wide enough to change what counts as a reasonable quote.

Redress has widened

One quieter but consequential change: the remit of the Energy Ombudsman was extended in December 2024 to cover a broader range of non-domestic complaints, including many disputes involving intermediaries. Historically a small business with a grievance about how a contract was sold had limited practical recourse short of legal action. That is no longer the case, and the extension applies to a size of business that previously fell through the gap between consumer protection and commercial contract law.

Practical steps before renewing

Start earlier than feels necessary. Contracts that lapse without renewal typically roll onto deemed rates, which are materially higher than negotiated ones, and the window for arranging a replacement is often shorter than owners expect. Six months before expiry is not too early to begin gathering quotes.

Ask any broker directly how they are paid and whether commission is included in the quoted unit rate. A broker who cannot answer that clearly is not necessarily acting badly, but the ambiguity is itself information. Request at least one quote sourced directly from a supplier as a baseline for comparison.

Check whether your meter arrangement matches your actual usage pattern. A surprising number of small firms are on tariff structures designed for a consumption profile they no longer have, particularly those that changed opening hours or added refrigeration or electric heating during the past few years. The saving from correcting a mismatched profile can exceed the saving from switching supplier.

The broader point is that the non-domestic energy market rewards attention in a way the domestic market does not. There is no cap to fall back on and no automatic protection against a poor deal. Falling wholesale prices have created room to negotiate; capturing that room requires actually negotiating.