You may have heard the term “blend and extend energy contracts” from your energy broker or supplier. This article explains what a blend and extend contract is. It also shows how it can help your business when energy market prices fall during a fixed-rate contract.
When you sign a fixed-rate electricity contract or natural gas contract, you agree to pay the same rate for the full contract term. The supplier agrees to bill you at that fixed price. To manage this risk, suppliers usually buy energy in advance from the wholesale market. Sometimes, market prices drop before your contract ends. In most cases, you cannot leave your contract early without paying a termination fee. A blend and extend contract can help in this situation. It allows you to benefit from lower prices without cancelling your existing agreement.
What Is a Blend and Extend Energy Contract?
A blend and extend energy contract is a type of gas & electricity agreement. It allows you to extend your current contract length in exchange for a lower energy rate. These contracts are useful for customers on fixed-price plans who are paying higher rates than the current market. When prices fall, a blend and extend option helps reduce costs while keeping your contract active.
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How Do Blend and Extend Contracts Work?
When you sign a new business energy contract, you usually must wait until your current contract ends. Only then do the new rates start. Blend and extend contracts work differently. They let you stay with your current supplier and extend your contract. You can get lower rates almost right away. You do not need to wait for your current contract to finish. These rates are lower than what you pay now. However, they are usually higher than current market rates.
Here is how they work.
- A blended rate is created first. Your supplier looks at your current contract rate and the current market rate. They then set a new price that sits between the two. This new rate starts immediately.
- An extended contract is added next. The contract is usually extended by 12 or 24 months. This is added to the time left on your current contract. You are locked into this agreement for the full period.
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How Can a Blend and Extend Contract Benefit You?
A blend and extend contract can work well for Gas and Electricity customers who want to reduce costs but cannot leave their current contract yet. If market rates have dropped below what you are paying, this option lets you benefit from lower prices without waiting for your contract to end. It may sound like an easy decision. However, there are important points to think about before moving forward.
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What Should I Consider Before Using Blend and Extend?
Before deciding, review the advantages and disadvantages of a blend and extend contract:
Advantages
- Reduces pressure on your energy expenses immediately.
- Protects if market prices rise during the contract term.
- The blended price is fixed for a longer period.
- Offers instant cost savings on energy bills.
Disadvantages
- You remain with your current supplier longer, which may be an issue if the service has been poor.
- It can be more expensive than a new Home or Business contract if market prices fall or stay low.
- The new contract is longer than a standard contract (12-24 months added).
- Blend and extend rates may not match the lowest market rate.
Conclusion
Blend and extend energy contracts offer businesses a flexible way to benefit from lower energy rates without ending their current agreement early. By combining your existing fixed price with current market rates, you can save money immediately while extending your contract term. However, these contracts may not always provide the lowest market rates and can extend your time with your current supplier. Businesses should carefully compare costs, assess market trends, and consider their long-term energy needs before deciding. When used wisely, blended and extended contracts can be a practical solution to manage energy costs effectively.
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FAQs
What Is A Blend And Extend Energy Contract?
A blend and extend contract allows a business to extend its current gas or electricity contract while benefiting from lower rates immediately, without paying early termination fees.
How Are Blended Rates Calculated?
Suppliers calculate blended rates by combining your current contract rate with the current market rate, creating a price that sits between the two.
How Long Does A Blend And Extend Contract Last?
These contracts typically extend your current agreement by 12 or 24 months, added to the remaining time on your existing contract.
Who Should Consider A Blend And Extend Contract?
Businesses that want to lower energy costs immediately, cannot exit their current contract, and are comfortable extending the contract term may benefit from this option.