The Hidden Costs of Commercial Energy Rates and How to Avoid Them

For businesses, energy costs are often one of the largest operational expenses, second only to staff salaries and rent. When evaluating commercial energy rates, it’s easy to focus on the cost per month and assume you’re getting a great deal without understanding that this is an estimated figure and can change significantly. Furthermore, many businesses overlook the hidden costs lurking within energy contracts that can significantly inflate overall expenditure. Understanding these hidden costs and knowing how to avoid them can make a significant difference in your energy budget and profitability.

In this short guide, we’ll break down the most common hidden costs associated with commercial energy rates, how they impact businesses, and actionable tips to help you avoid them.

What Are Hidden Costs in Energy Contracts?

Hidden costs are charges or fees that aren’t immediately obvious when you’re comparing energy rates. While the unit rate (the price you pay per kWh) is prominently advertised, many suppliers include additional charges in their contracts that can go unnoticed unless you read the fine print. These costs often come in the form of capacity charges, penalties for exceeding usage limits, standing charges and more.

Failing to account for these hidden costs can lead to higher-than-expected bills, even if your unit rate is competitive. Let’s explore the most common hidden charges in detail.

Standing Charges

Standing charges are daily fees that suppliers impose to cover the cost of maintaining your energy supply. These charges apply whether you’re using energy or not, and they can vary significantly between suppliers.

For example, a supplier may offer a low unit rate but impose a high standing charge, making their overall contract more expensive than a competitor with slightly higher unit rates but lower standing fees.

• How to Avoid: Always consider the total cost of a contract, including standing charges. Compare quotes side-by-side to ensure you’re getting the best deal for your energy usage pattern.

Out-of-Contract Rates

If you don’t renew your energy contract before it expires, you may be automatically placed on an out-of-contract or "deemed" rate. These rates are typically much higher than those in negotiated contracts, often increasing your energy costs by up to 50%.

Out-of-contract rates are designed to penalise businesses for not renewing their contracts on time and to incentivise them to take action. Many businesses inadvertently find themselves on these rates due to poor contract management or lack of awareness.

• How to Avoid: Keep track of your contract renewal date and set reminders to review and renegotiate your terms in advance. At Clear Utility Solutions, we can help monitor your contracts and ensure you’re never caught off guard.

Capacity Charges

Capacity charges, also known as maximum demand charges, apply to businesses with larger energy requirements and specific meter types. These fees are based on the maximum amount of electricity your business is expected to use during peak periods. If your energy usage exceeds this agreed-upon limit, you could face hefty penalties.

• How to Avoid: Work with your consultant and conduct a capacity review to ensure your charges are at the correct level based on your historical energy usage. If your usage patterns have changed, request a reassessment to avoid overpaying and remember, reducing your capacity can also reduce your standing charge in the future.

Penalties for Early Termination

Switching suppliers before your contract ends can result in early termination fees. While switching is often beneficial, these penalties can offset the savings you’d gain from a new supplier.

• How to Avoid: Review your current contract’s terms and conditions to understand any exit fees before deciding to switch. If the savings outweigh the penalties, it may still be worth making the move.

Additional Fees and Passthrough Charges

Some suppliers include additional fees for services like meter maintenance, late payments, or even green energy levies. These charges can be hidden in the fine print of your contract and may not be obvious when comparing quotes. These charges are often the result of a ‘Passthrough’ contract and whilst these types of agreement can often be beneficial, you must take the time to fully understand what costs are fixed and which are passed through.

• How to Avoid: Always ask for a full breakdown of costs when reviewing quotes. At Clear Utility Solutions, we ensure transparency and help you understand the true cost of each contract.

Volume Tolerances

Some suppliers charge a fee for customers who use more or less energy than stated on their contract. To offer competitive fixed tariffs it is necessary for energy suppliers to forward purchase or ‘hedge’ for their customers’ power. This puts them at enormous risk should a customer use far more or far less than stated and whilst most suppliers take a view that such variations are mutualised across their base, some prefer to pass these costs on.

How to Avoid Hidden Costs in Energy Contracts

Navigating the complexities of commercial energy contracts can be daunting, but there are several steps you can take to protect your business from hidden costs:

Work with a Trusted Partner

A reliable energy broker, like Clear Utility Solutions, can help you navigate the energy market and identify contracts without hidden fees. We analyse contracts in detail to ensure you’re getting the best value for money.

Compare Full Quotes, Not Just Unit Rates

When requesting quotes, make sure to get a full breakdown of costs, including standing charges, capacity charges, and any additional fees. This will give you a clearer picture of the true cost of each contract.

Monitor Your Usage

Keeping track of your energy consumption can help you avoid penalties and ensure you’re on the right contract for your needs. Many suppliers offer smart meters or online tools to help you monitor usage in real time.

Plan Ahead

Don’t wait until the last minute to review your energy contract. Set reminders for contract renewal dates and start comparing options at least three months in advance. Take a look earlier if you can, sometimes there will be better deals further out from your contract end date, especially if your contract ends in the colder months when uncertainties in weather conditions can cause fluctuations in wholesale prices.

Conclusion

The advertised price of commercial energy contracts is just the tip of the iceberg. Hidden costs like volume tolerances, out-of-contract rates, and capacity charges can significantly inflate your energy bills if you’re not careful. By understanding these costs and taking proactive steps to avoid them, you can save money and gain greater control over your energy expenses.

At Clear Utility Solutions, we’re here to help businesses uncover hidden costs and secure the best energy contracts. With our expertise and commitment to transparency, we make it easy for you to navigate the energy market and maximise savings.

Get in touch today to see how we can help your business reduce energy costs and avoid hidden fees.