Pass-Through vs Fully Fixed Energy Contracts: Which is Best for Your Business?

Understanding the Difference Between Pass-Through and Fully Fixed Contracts

Choosing the right electricity contract for your business can be challenging. With over 150 different contract types available in the UK, understanding the differences between Pass-Through and Fully Fixed energy contracts is essential. What may seem like the cheaper option upfront could turn out to be more expensive in the long run.



This guide will break down both contract types, explaining their benefits, risks, and how they impact your business costs, making it easier for you to decide which is best suited for your needs.

Understanding Non-Commodity Costs (NCCs)

Before we dive into contract types, it's important to understand Non-Commodity Costs (NCCs). Your electricity bill consists of:

• Commodity Costs – The actual cost of the electricity you use.
• Non-Commodity Costs (NCCs) – Transmission, distribution, government levies, and environmental charges, which make up over 35% of electricity costs and nearly 15% of gas bills.



These NCCs fluctuate annually, varying by location, meter type, and supplier, adding uncertainty to Pass-Through contracts.

What is a Pass-Through Contract?

A Pass-Through contract separates your energy bill into two parts:

1. Fixed Energy Cost – The actual electricity price per kWh.
2. Variable NCCs – These are charged at cost and fluctuate over time.

Benefits of a Pass-Through Contract

✔ Potential Cost Savings – If NCCs decrease, businesses benefit from lower rates. ✔ Transparency – Detailed cost breakdown for better tracking. ✔ Flexibility – Larger businesses with Half Hourly meters can adjust usage to avoid peak costs.



Risks of a Pass-Through Contract

❌ Budget Uncertainty – Costs change yearly, making financial planning harder. ❌ More Administrative Work – Monitoring fluctuating costs requires attention. ❌ Triad Charges Exposure – Businesses may face high winter peak charges if they don’t actively manage energy use.

Pass-Through Cost Breakdown (2024/25 Estimates)

Real-World Example

A recent client signed a Pass-Through contract with:

• Day Rate: 19.4571 p/kWh
• Night Rate: 16.8585 p/kWh
• Standing Charge: 0.00 p/day

Once NCCs were added, the real cost jumped to 31.3571 p/kWh (Day) and 28.7585 p/kWh (Night), significantly impacting their overall expenditure.

What is a Fully Fixed Contract?

A Fully Fixed contract locks in both the electricity cost and NCCs for the duration of the contract, providing budget certainty.

Benefits of a Fully Fixed Contract

✔ Predictable Costs – No surprises; you know what you'll pay. ✔ Lower Risk – Protection from NCC increases. ✔ Ease of Administration – No need to monitor fluctuating charges.

Risks of a Fully Fixed Contract

❌ Potentially Higher Upfront Costs – Suppliers include a risk premium. ❌ No Benefit from Falling NCCs – You won’t save if NCCs drop. ❌ Less Flexibility – No ability to adjust costs by shifting usage.

Pass-Through vs Fully Fixed: A Direct Comparison

Final Thoughts: Which Contract is Right for You?

✔ If you’re risk-averse and want budget certainty, a Fully Fixed contract is the safer choice. ✔ If you’re willing to monitor and manage usage, a Pass-Through contract could save you money. ✔ Understanding supplier contracts is crucial, as definitions of ‘fixed’ and ‘pass-through’ can vary. ✔ If you're considering a Pass-Through contract, ensure you have the capability to adjust your energy consumption to avoid peak costs.



Need help deciding? Get in touch with Smart Energy Company for expert advice and tailored energy solutions!