1-Year vs Longer-Term Energy Contracts: What's Actually in Your Unit Rate

Most businesses pick a contract length based on the headline p/kWh rate. But the energy you actually buy is less than half of what you're paying for. The rest — network charges, levies, policy costs — is rising fast, and it changes the maths on short vs long contracts completely.

Total transmission revenue recovered through business electricity bills

Source: NESO 5-year TNUoS forecast; Utility Bidder; Drax Intelligence.

The biggest driver is TNUoS — the charge funding the high-voltage grid. NESO confirmed a volume-weighted average rise of 64% year-on-year from April 2026, with some bands seeing increases of up to 116%. Total TNUoS revenue is rising from £5.1bn to £8.9bn in a single year, heading towards £13.6bn by 2030/31.

On top of that: the Nuclear RAB Levy(0.346p/kWh from Dec 2025, funding Sizewell C), Capacity Market charges roughly doubling, and CCL rising 3.4% from April 2026. Cornwall Insight projects NCCs could add up to £450,000/year to large business bills by 2030 — rising over 10% per year through the decade.

Here's what most businesses don't realise: most "fixed" energy contracts only fix the wholesale (commodity) element. Non-commodity costs are typically passed through at cost, meaning they change every April when TNUoS, DUoS, CCL and other charges are reset.

So if you sign a 3-year "fixed" contract, your unit rate might be locked in — but your standing charges and pass-through costs will still rise every year. Some suppliers include NCCs within the unit rate, but they'll have built in a forecast and added a margin for the risk.

This doesn't mean longer contracts are bad — it means you need to understand what "fixed" actually means in yours.

A 3-year "fixed" contract at 26p/kWh does not mean you'll pay 26p/kWh for three years. In most cases, the commodity element is fixed but non-commodity charges are passed through at cost. Every April, when TNUoS, DUoS, CCL and other charges reset, your bill goes up — even though your "rate" hasn't changed.

Some suppliers fix NCCs within the unit rate — but they forecast future NCC levels and add a risk margin. Always check your contract terms to understand exactly what's fixed and what's pass-through.

This isn't theoretical. The Iran conflict that began on 28 February 2026 has sent UK wholesale gas from ~72p to over 135p in a matter of days. Here's what that looks like in practice.

Businesses that signed 2 or 3-year contracts in late 2025 are sitting on rates that are 40–50% cheaper than what's available today. They locked in before anyone knew a war was coming. That's the case for longer-term contracts — when the market spikes, you're protected.

If you sign a 3-year contract today — with gas at 124p and electricity near £96/MWh — and the conflict ends, Hormuz reopens, and wholesale falls back to 70–80p, you'd be stuck paying 50%+ above market rates for two more years. That's the risk of locking in long when prices are elevated.

Wholesale prices are always a gamble.

Nobody predicted Iran. Nobody predicted Ukraine. Nobody predicted Covid. Too many variables for anyone to forecast reliably.

But non-commodity costs are not a gamble. They're published policy — and they're going up.

Nobody can tell you with certainty whether a 1-year or 3-year contract is "better." Anyone who says otherwise is either guessing or selling you something. The businesses that locked in at 72p before the Iran conflict look like geniuses right now. But that wasn't strategy — it was timing. And the businesses that locked in at 50p before the Ukraine crisis in 2022 looked like geniuses too, until prices fell back and they were stuck on expensive rates.

Wholesale prices are unpredictable. Wars, weather, politics, OPEC — there are too many variables for anyone to forecast reliably. That's the gamble, whichever contract length you choose.

But non-commodity costs are not a gamble. TNUoS tariffs are published years in advance. The Nuclear RAB is already on your bill. CCL rates are set through 2027. Capacity Market charges are confirmed. These costs are going up — that's not a prediction, it's policy. And they'll rise whether you're on a 1-year deal or a 5-year deal, whether wholesale is 70p or 130p, whether there's a war or not.

So while you can't control the wholesale side, you can make sure you understand the non-commodity side — and factor it into every contract decision you make. That's the one edge you actually have.