What Are Deemed Rates? And Why They Cost Your Business a Fortune

If you've ever let a business energy contract expire without renewing it, you've almost certainly been placed on deemed rates. And if you're currently on deemed rates, you're almost certainly paying far more than you need to.

This guide explains exactly what deemed rates are, why they're so expensive, and — most importantly — how to get off them as quickly as possible.

When a business energy contract expires and no new contract is in place, the energy supplier doesn't cut off your supply. Instead, they continue to provide energy under what are called "deemed" or "out-of-contract" rates.

These rates are set by the supplier and are typically significantly higher than contracted rates. Ofgem regulations require suppliers to publish their deemed rates, but there's no cap on how high they can be — and in practice, they're often 40–60% above the rates available on a fixed-term contract.

Suppliers set deemed rates high for several reasons:

1. They're a commercial incentive to renew — High out-of-contract rates encourage businesses to sign new contracts
2. They reflect the supplier's risk — Without a contract, the supplier has no certainty about how long you'll stay
3. They're a revenue opportunity — Many businesses don't notice they've rolled onto deemed rates, and suppliers benefit from the higher margin

The most common routes onto deemed rates are:

• Contract expiry — Your fixed-term contract ends and you haven't arranged a renewal
• Auto-rollover — Your contract auto-renewed at the end of the term, but you missed the notice window to prevent it (auto-rollover contracts are often at deemed or near-deemed rates)
• Change of tenancy — You've moved into a new premises and haven't yet set up a supply contract
• Business acquisition — You've acquired a business and inherited its energy arrangements

The exact premium varies by supplier and market conditions, but as a rough guide:

• A business spending £20,000 per year on energy at contracted rates might pay £28,000–£32,000 on deemed rates
• A business spending £50,000 might pay £70,000–£80,000

Every month on deemed rates is money that could stay in your business.

The simplest way is to call your current supplier and ask. You can also check your most recent energy bill — if it shows a "deemed" or "out of contract" rate, or if the unit rate seems unusually high compared to market rates, you're likely on deemed rates.

If you're not sure what a competitive rate looks like, a broker can tell you within minutes.

The good news is that you can switch away from deemed rates relatively quickly:

1. Contact an independent broker — They can compare options from their supplier panel and help you review competitive contract options for your consumption profile
2. Sign a new contract — This can often be done within 24–48 hours
3. The switch takes effect — For out-of-contract customers, switches typically complete within 28 days

There are no exit fees for leaving deemed rates — you're not in a contract, so you can switch at any time.

The key is to start the renewal process early:

• Set a reminder 6 months before your contract end date — This gives you time to compare the market properly
• Check your contract for auto-rollover clauses — Know the notice period required to prevent automatic renewal
• Use a broker to manage your renewals — A good broker will proactively contact you before your contract expires and handle the renewal process

Every day on deemed rates costs your business money. Our brokers can compare the market and get you onto a competitive contract quickly — No separate fee for our standard comparison service.

Get a free quote today or call 01256 844048 to speak with an energy expert.