In short
A pass-through energy contract is a business gas or electricity contract where the energy (commodity) price is fixed or set by the supplier, but some or all non-commodity costs, such as network, balancing and government policy charges, are passed on at cost as they change. A fully fixed contract builds those costs into the price instead.
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What a pass-through contract is
A business electricity price has two parts. The commodity is the wholesale energy itself. The non-commodity part is everything needed to deliver it and pay for government schemes: network charges, balancing costs, policy levies, metering and settlement. Our guide to non-commodity costs lists them.
On a fully fixed contract the supplier estimates those non-commodity costs for the whole term, prices them into your unit rates and standing charges, and carries the risk if they change. On a pass-through contract some or all of them are not fixed: the supplier passes them on to you at the rates that actually apply, and your bill moves when they do.
Ofgem's guidance for microbusinesses describes this directly: some factors in energy bills may change during the life of the contract and may be presented on a pass-through basis, where they are added to the energy price when the charges are known by the supplier. It advises checking whether your price may vary within the term.
Which costs can be passed through
Exactly which items are passed through depends on the contract. These are the main non-commodity elements on a business electricity bill:
| Cost element | What it pays for | Typical treatment on a pass-through contract |
|---|---|---|
| Distribution use of system (DUoS) | Running the regional network that brings power to your site | Passed on at the distribution network operator's published charges |
| Transmission use of system (TNUoS) | The national high-voltage transmission network | Passed on as charged |
| Balancing services | Keeping the national system balanced second by second | Passed on as charged |
| Policy schemes | Renewables Obligation, Feed-in Tariffs, Contracts for Difference and the Capacity Market | Passed on as the scheme costs are set |
| Metering and settlement | Meter operation, data collection and industry settlement | Fixed or passed on, depending on the contract |
| Capacity charges (half-hourly sites) | Your agreed supply capacity in kVA, charged daily | Usually shown as its own line |
Taxes sit outside this choice. The Climate Change Levy and VAT are charged at the rates in force on any contract, and CCL rates are set by government from 1 April each year. Some contracts fix certain non-commodity elements and pass through others, so ask for a breakdown rather than assuming a contract is all one or the other.
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Fully fixed versus pass-through
Neither structure is cheaper by definition. They allocate risk differently.
| Fully fixed | Pass-through | |
|---|---|---|
| Commodity price | Fixed for the term | Fixed or set by the supplier, depending on the product |
| Non-commodity costs | Estimated and built into the rates | Charged at cost as they change |
| Who carries the risk of those costs changing | The supplier | You |
| Budget certainty | Higher | Lower |
| Bill detail | Fewer, combined lines | More lines, closer to the underlying charges |
| If charges fall during the term | Your rates stay the same | Your bill can reflect the fall |
With a fully fixed contract you pay for the supplier taking on the risk, because it has to price in what it expects those costs to be. With pass-through you avoid that, but you take on the uncertainty. Fixed rate business energy can be fully fixed or have pass-through elements, and flexible energy contracts often treat non-commodity costs separately from the energy they buy.
How pass-through costs show up on your bill
On a fully fixed bill you usually see a unit rate, a standing charge and the taxes. A pass-through bill is closer to the underlying charges, so expect more lines, especially at half-hourly metered sites. Depending on the supplier, you may see:
- Separate lines for network charges, sometimes split by time of day or by unit and fixed elements
- A daily capacity charge based on your agreed supply capacity in kVA, and an excess capacity charge if your demand goes above it
- Separate lines, or one combined line, for policy scheme costs
- Metering and data charges, if your meter operator and data collector costs are not included elsewhere
- Adjustments to earlier bills when actual charges replace estimates
Network charges for your site depend on its connection and meter. Elexon explains that the line loss factor class on the top line of your MPAN identifies the distribution use of system tariff and the losses that apply, and each distribution network operator publishes a charging statement setting out its charges. Checking these lines regularly is part of running a pass-through contract well; our business energy bills explained guide walks through a bill line by line.
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Who pass-through contracts suit
Pass-through structures are most common for larger electricity users, especially sites with half-hourly meters. Elexon's settlement rules have required half-hourly settlement for the larger maximum-demand meters, profile classes 5 to 8, since April 2017, and those sites already see detailed charges on their bills, including capacity charges.
A pass-through contract may suit you if:
- Your consumption is large enough that the non-commodity part of your bill is worth managing in its own right
- You have the finance capacity to handle bills that change during the term
- You want visibility of each underlying charge, for example to check your agreed capacity or plan around network charges
- You are on a flexible contract and want the non-energy costs treated separately
For most micro and small businesses, a fully fixed contract is simpler and easier to budget for.
Risks and what to ask
The main risk is that pass-through costs rise during your contract and your bills rise with them. Some charges are only known after the event, so pass-through items can also appear as adjustments on later bills. Before you agree, ask:
- Which cost elements are fixed, and which are passed through?
- How will each passed-through item be shown on the bill?
- When and how are passed-through costs reconciled against actual charges?
- What happens if a new government scheme or charge is introduced during the term?
- How is broker commission added, and where is it shown in the principal terms?
Ofgem has required broker fees to be shown in the principal terms of all non-domestic contracts signed from 1 October 2024. Unless you opt at the start to be invoiced directly, Fidelity Energy's commission is added as an uplift on the unit rate and/or standing charge, with the estimated amount set out in your contract documents. Read the principal terms alongside the quote, not just the headline rates.
How we can help
We introduce you to Fidelity Energy, an independent energy consultancy and broker, and help you collect the bills, half-hourly data and capacity details a pass-through quote needs. Fidelity Energy gets quotes from its network of suppliers, sets out which costs each quote fixes and which it passes through, and arranges the contract you choose. Fidelity Energy also offers bill validation and half-hourly reporting, which help when your bills carry more line items. Your contract is with the supplier.
Ask us for a quote that shows the structure clearly. Weighing up a fully fixed or pass-through contract? Contact us.
How Forever Communications helps with business gas and electricity
Forever Communications is part of Forever Group, which looks after phone systems, business mobiles and connectivity for UK organisations. For business electricity and gas, we work as an agent of Fidelity Energy, an independent business energy broker that prices your requirements with the suppliers on its panel. We are not an energy supplier, and neither is Fidelity Energy.
- Make sense of your bills: we can help you read unit rates, standing charges, meter details and the other costs on your invoices
- Like-for-like quotes: we help you gather your meter numbers, consumption and contract end dates so suppliers quote on the same basis
- The right tariff type: we can talk you through fixed, flexible and pass-through contracts, green electricity and green gas options before you decide
- Better timing: we help you plan a renewal ahead of your contract end date, or move off deemed and out-of-contract rates when you move premises
- Your choice: you decide which quote, if any, to accept; prices and terms are set by the suppliers and confirmed at quote, including the broker commission
We work with offices, shops, hospitality, landlords, manufacturers and multi-site organisations. Send us a recent bill and we can take it from there.
Frequently asked questions
What is a pass through contract in energy?
It is a business energy contract where the energy price is fixed or set by the supplier, but some or all non-commodity costs, such as network, balancing and policy charges, are passed on to you at cost as they change, instead of being fixed in your rates.
What are pass-through charges on an electricity bill?
They are the non-energy charges a supplier passes on at the rates that actually apply: typically distribution and transmission network charges, balancing costs, policy scheme costs such as the Renewables Obligation and Contracts for Difference, and sometimes metering. Ofgem says they are added when the charges are known by the supplier.
Is a pass-through contract cheaper than fully fixed?
Not by definition. A fully fixed contract includes the supplier's allowance for non-commodity costs changing; a pass-through contract charges what they actually are. If those costs rise during the term you pay more, and if they fall you can benefit.
Who should consider a pass-through energy contract?
Mainly larger electricity users, often with half-hourly meters, who can handle bills that vary during the term and want visibility of each underlying charge. Most smaller businesses prefer a fully fixed contract for budget certainty.
Do I pay VAT and Climate Change Levy on a pass-through contract?
Yes. VAT and the Climate Change Levy are charged at the rates in force on any business energy contract, fixed or pass-through, unless a reduced or zero rate of VAT, or a CCL exemption or relief, applies to your use.
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