Our Guide to Volume
Tolerance Charges
When you sign a business electricity contract, you effectively commit your business to use a certain amount of electricity over the period of your contract.
If you exceed or undershoot that amount, your electricity supplier can charge you for the difference.
This restriction on your electricity use is down to a clause commonly called ‘volume tolerance’.
As far as we know, all UK business electricity suppliers include it in the T&Cs (terms and conditions) of their fixed price contracts. And it could expose your business to an unexpected bill at the end of each year of your contract.
Energy brokers have a deep understanding of the commercial energy business. We constantly monitor gas and electricity market prices, which enables us to help our clients make informed business energy buying decisions.
How Volume Tolerance Works.
Your electricity supplier will base the forecast on how much you used last year, or on your own forecast if you provided one.
Through the wholesale market, your supplier will commit to buying the amount of electricity you’ll need for the term of your contract. This sets the price you’ll pay.
If you use MORE electricity.
You pay for more units of electricity at your agreed fixed price.
The supplier buys more electricity than expected at a higher price through short-term markets and can charge you for the difference through the volume tolerance clause.
If you use LESS electricity
You pay for fewer units of electricity at your agreed fixed price.
The supplier has to sell off electricity at lower prices through short-term markets and can charge you the difference through the volume tolerance clause.
Make sense?
So that’s how volume tolerance clauses work. They don’t affect what you pay in your regular monthly bills. But if your electricity use varied a great deal against your forecast, you could get an extra bill at the end of the year.
Who gets charged and when?
The trigger for being charged is a significant difference (up or down) between your actual and forecast consumption. What qualifies as significant depends on the buffer – called a volume tolerance threshold - in your contract.
For instance, some contracts allow for a 20% variation without charge whereas others have a tighter 10% threshold.
In practice, electricity suppliers don’t like upsetting customers. So, they may choose not to charge you if the wholesale electricity price was stable during your contract. Remember it’s the combination of large swings in prices and volumes which creates large unexpected and uncontrollable costs for the supplier.