Why shouldn’t I accept the renewal offer?

If your energy contract is coming to an end, you might be wondering what to do next. Many people, who are satisfied with their current deal and energy provider, simply decide to renew the contract with the same supplier.

While this is an easy solution, it usually isn’t the best one.

Do you know why?

In fact, suppliers often take advantage of people choosing the easy way and they send out slightly higher prices in renewal letters. The prices they offer when your current contract is ending tend to be 2-3p per kWh more expensive. Many customers do not read the offers carefully and they agree without checking whether other suppliers have more competitive prices, or if many their current supplier also offers a cheaper tariff. Consequently, they often find themselves paying £100 to £1000 more per year for their energy.

Furthermore, it is a common practice for the biggest suppliers to place customers, who do not react to their contract ending, on deemed rates. These tariffs can be double normal rates so they are not a good alternative to being rolled over.

Now you should realise that thinking about your contract renewal and looking for the best energy deals instead of simply accepting the renewal offer is extremely important. Keep reading to find out more!

Why do contracts get rolled over?

Most of the Big Six energy suppliers do not use rollover contracts anymore because Ofgem encouraged them to. Instead of rolling customers over, the Big Six companies put them on deemed tariffs that might be more expensive but unlike rollover, contracts can be ended or changed to a different tariff for free.

Nevertheless, if you are with any other provider, you will most likely be at risk of being rolled over if you forget to react to your contract coming to an end. The main reason for suppliers putting customers on rollover contracts is to generate profit. They know that customers often forget about the fact that their contract is about to expire, and thus they do not do anything about it. Even though customers get annoyed about rollover contracts’ prices being very high, for suppliers placing someone on a rollover tariff simply means getting more money.

What are rollover and deemed contracts?

As has already been mentioned, if your current energy contracts ends and you do not react, you will either be rolled over or placed on a deemed contract. Have a look at the table below to find out what the differences between them are.

 type of contractcharacteristics
rollover contractA new contract that your supplier will sign you up to if your existing contract is due to end and you do not cancel or renew it.   Rollover contracts include high energy rates and usually last one year.
deemed contractA contract that you will be placed on if you haven’t agreed on a new contract with your supplier.   Often put in place when you move into new premises and start using energy without getting a contract first.   Deemed contracts are amongst the least competitive.

What are the laws surrounding rollover contracts?

Many customers complain about rollover contracts being unfair. While that might be true, they are not against the law. There are, however, a few rules that energy providers need to adhere to:

  1. Around 60 days before your contract ends, the supplier must send you a letter with the renewal offer.
  2. The letter also needs to explain the conditions of the rollover contract that you will be put on if you don’t renew or terminate your current contract.
  3. The maximum duration of the rollover contract cannot exceed 12 months.
  4. Each supplier offers you a window after sending the renewal letter, during which you have to tell them that you don’t want to accept it.

How to avoid being rolled over?

It is easy to fall into a rollover contract but luckily it is also easy to avoid that. If your supplier still uses rollover contracts and you are a micro-business, all you have to do to avoid being placed on an expensive rollover contract is submit a termination notice on time. Each supplier can have a different policy for customers submitting termination notice but in line with what Ofgem recommended, usually, you have to give the notice no more than 30 days before your contract ends.

Many suppliers, however, give you the chance to secure a new contract even several months before your current one finishes. If you do that, you won’t be able to start it and get new rates before the existing contract ends, but you will get the opportunity to secure the best prices.

When you realise that your current contract is about to end, it is important that you take action. If you terminate your existing contract but you do not get a new one with your current or a new supplier, you will face out-of-contract rates. These rates tend to be very expensive as there is no limit on how high they can be. As Business Juice writes ‘Out-of-contract rates can be more than double the typical market rate from your supplier – for example, a standing charge of £1 a day, and a unit rate of 20p/kWh, compared to a typical rate of 25p a day, and 11p/kWh.’

What to do if you have been rolled over?

You should do everything you can to avoid being rolled over because, regrettably, once that happens there isn’t much you can do. If you miss the chance to terminate your existing contract and get a new deal, you will have to come to terms with higher rates and being stuck with the rollover contract for as long as one year. Being locked in for 12 months and having to pay expensive energy rates can have a detrimental impact on your business so you will have to undertake steps to make sure that this never happens again.

If you want to avoid being rolled over and you want to get help keeping track of everything related to your energy contract, seek advice from an energy broker!

For more information about this post and how Energy Solutions can help with your Electricity, Gas, or Water, click on the links, or check out the contact details at the bottom of the page.