For many businesses, a fixed energy contract sounds straightforward. Agree a unit rate, sign the contract, and enjoy budget certainty for the duration of the deal.
Unfortunately, the reality is often more complicated.
While suppliers may fix the wholesale element of an electricity contract, a number of industry charges can still fluctuate during the contract term. These charges are largely outside a supplier's control and are driven by the costs of operating, balancing and developing the UK's electricity network.
As a result, many organisations that believed they had locked in all of their electricity costs are surprised to find additional charges appearing on invoices months or even years later.
Understanding these costs has become increasingly important as the UK's energy system transitions towards a more decentralised, renewable-based network.
The Myth of the Fully Fixed Contract
When discussing energy procurement, many buyers focus almost exclusively on the headline unit rate.
However, an electricity bill is made up of far more than wholesale power. Network costs, balancing charges, policy levies and other regulatory charges account for a growing proportion of overall expenditure.
Suppliers face the same uncertainty. They can hedge electricity volumes and fix wholesale prices, but they cannot always accurately predict future regulatory and network charges that are set by third parties.
To manage this risk, many contracts contain pass-through clauses that allow certain costs to be adjusted during the agreement term.
These are often buried deep within terms and conditions and can easily be overlooked during contract negotiations.
TNUoS: Paying for the Transmission Network
One of the most common examples is TNUoS, or Transmission Network Use of System charges.
TNUoS charges fund the operation, maintenance and development of the high-voltage electricity transmission network that moves power around Great Britain.
As the network expands to accommodate offshore wind farms, grid reinforcement projects and increasing electrification, transmission costs have risen significantly. These charges are reviewed and updated by the relevant authorities and can vary year to year.
Even where a customer has agreed a fixed electricity price, suppliers may reserve the right to pass through changes in TNUoS costs because these charges are outside their direct control.
For large energy users in particular, TNUoS volatility can have a material impact on overall energy budgets.
BSuoS: The Cost of Keeping the Lights On
Another frequently misunderstood charge is BSuoS, or Balancing Services Use of System.
National Grid Electricity System Operator incurs costs every day to balance supply and demand across the electricity system. When renewable output changes unexpectedly, generators trip offline, or demand deviates from forecasts, balancing actions are required to maintain system stability.
The costs of these actions are recovered through BSuoS charges.
Historically, BSuoS has been one of the most volatile components of electricity pricing. While reforms have altered how these costs are charged, the underlying principle remains the same: maintaining a reliable electricity system comes at a cost, and that cost is not always predictable years in advance.
For suppliers offering long-term fixed contracts, absorbing all future BSuoS movements can be commercially challenging, which is why many contracts include mechanisms to recover changes from customers.
The Emerging Impact of RAB
A newer consideration is the Regulated Asset Base (RAB) model.
The UK Government has adopted the RAB funding approach for major infrastructure projects, most notably new nuclear generation. Under this model, consumers begin contributing towards project costs during construction rather than waiting until the asset becomes operational.
Supporters argue that this lowers financing costs and ultimately reduces the total cost to consumers. Critics point out that customers may end up paying for projects long before they receive any benefit from them.
Regardless of the debate, the important point for energy buyers is that these types of policy and regulatory costs can increasingly appear within electricity pricing structures.
As the energy transition accelerates, new mechanisms such as RAB are likely to become a larger component of the overall cost stack.
What Businesses Should Ask Before Signing
The most important question any business can ask is not "Is this fixed?" but rather "What exactly is fixed?"
Before committing to a contract, organisations should understand:
The difference between a fully fixed contract and one with significant pass-through exposure can amount to thousands, or even tens of thousands, of pounds over the life of the agreement.
Why the Pressure Is Only Going One Way
For many years, businesses viewed non-commodity charges as a relatively minor issue. Today, however, network and policy costs are becoming an increasingly significant proportion of the total electricity bill.
The reasons are understandable. The UK is investing heavily in transmission infrastructure, grid reinforcement, renewable generation connections, energy security and nuclear development. While these investments are essential for the transition to a low-carbon economy, they inevitably have to be funded by consumers.
Recent forecasts from the National Energy System Operator (NESO) have highlighted the scale of the challenge. Forecasts published for the next transmission price control period indicate significant increases in TNUoS revenues as network operators build the infrastructure required to support electrification and the connection of renewable generation. Industry commentators have suggested that some TNUoS charges could increase dramatically over the remainder of the decade as RIIO-3 investment programmes are implemented.
Ofgem's RIIO-3 framework has already approved £28.1 billion of upfront network investment, with a wider investment pipeline estimated at around £90 billion by 2031. Ofgem estimates this could add around £60 to a typical electricity bill by 2031 before wider system benefits are taken into account.
Similarly, the introduction of the Regulated Asset Base (RAB) model for Sizewell C means electricity consumers will begin contributing towards the cost of the project during construction rather than solely after generation begins. The Government has stated that this approach should reduce overall financing costs, but it nevertheless introduces an additional policy-related cost component that energy buyers must consider when planning future budgets.
The direction of travel is clear: even if wholesale electricity prices stabilise, non-commodity charges are likely to remain an area of upward pressure for many organisations.
Risk Mitigation: What Can Businesses Do?
The natural reaction might be to search for a "fully fixed" contract. In reality, this is not always available and, where it is, suppliers will often charge a significant premium for accepting unknown future regulatory risks.
A more effective approach is usually to focus on understanding, managing and mitigating exposure.
Businesses should consider:
Many contract disputes arise not from unexpected charges themselves, but from customers not realising those charges were excluded from the fixed price.
Procurement teams should understand exactly which elements are fixed and which remain subject to adjustment. Particular attention should be paid to TNUoS, BSUoS, Change in Law provisions and future policy charges.
Budget forecasts should include sensitivity modelling for network and regulatory charges.
Rather than assuming charges remain static, organisations should model best-case, expected-case and worst-case scenarios over the life of the contract.
For larger consumers, flexible procurement frameworks may offer greater visibility and control than traditional fixed-price contracts.
A flexible strategy cannot eliminate regulatory costs, but it can help separate wholesale risk from network and policy risk, making budget management more transparent.
The cheapest unit of electricity is still the one that is not consumed.
Energy efficiency measures, on-site generation, battery storage and load optimisation can reduce exposure to both commodity and non-commodity charges over the long term.
A three or four-year contract signed today may be operating in a very different regulatory environment by the time it expires.
Regular contract reviews help ensure businesses remain aware of emerging cost pressures and avoid unpleasant surprises.
The Real Definition of Fixed
Perhaps the most important lesson for energy buyers is that "fixed" should never be accepted as a standalone description.
The right question is not:
"Is the contract fixed?"
The right question is:
"Which costs are fixed, which costs can move, and who carries the risk when they do?"
In an energy market increasingly shaped by network investment, decarbonisation policy and infrastructure funding mechanisms, the answer to that question matters more than the headline unit rate.
Conclusion
Fixed energy contracts remain an important tool for managing risk and improving budget certainty. However, "fixed" does not always mean every component of the bill is guaranteed.
As network investment increases, balancing costs evolve and new funding mechanisms such as RAB emerge, businesses must look beyond the headline rate and understand the detail behind the contract.
In today's energy market, knowing what isn't fixed can be just as important as knowing what is.
I founded Stratagem after having worked with energy suppliers and consultants for 20 years that I wanted to build something different.
