Pass-through contract
What is a pass-through contract?
A pass-through contract is a business energy agreement that fixes the wholesale cost of the energy but lets the non-commodity costs, such as network charges and policy levies, pass through to you at whatever they actually turn out to be. It sits between a fully fixed contract, where every element is locked, and a flexible one. The appeal is a potentially lower headline rate, because the supplier is not adding a risk premium to cover those variable costs. The trade-off is less certainty, since part of your unit rate can rise or fall while the contract runs.
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Pass-through contracts are most common among larger energy users and those comfortable with a bit of price movement in exchange for a keener wholesale rate. To understand one, it helps to know that an energy price splits into two halves: the commodity and everything else.
What a pass-through contract is
In a pass-through contract, the supplier fixes the wholesale energy element of your price but passes the non-commodity costs straight through to you, at cost, as they change. So the part of your bill that pays for the actual energy is locked, while the part that pays for networks and policy moves with the underlying charges.
It is sometimes called a semi-fixed contract, which captures the idea well. Half of the price is pinned down and half is left to float.
The two parts of your price
Every business energy unit rate is built from two broad components. The commodity cost is the wholesale energy itself. The non-commodity costs are everything bundled on top: network charges for using the wires and pipes, and policy costs such as the Climate Change Levy and the Nuclear RAB Levy.
A fully fixed contract locks both halves. A pass-through contract fixes the commodity half and passes the non-commodity half through at cost, which is the single distinction that defines it.
How it appears on the bill
On many pass-through contracts the non-commodity costs are itemised rather than buried in a single rate, so you can see the network and policy charges as separate lines. That transparency is part of the point, since you are paying those costs at their actual level rather than an estimate the supplier has baked in.
It also means your effective standing charge and per-unit cost can shift between bills as those underlying charges are updated, which does not happen on a fully fixed deal.
Pass-through vs fixed
On a fixed contract, the supplier prices in a risk premium to cover the chance that network and policy costs rise during the term. You pay a little more for the certainty that nothing moves. On a pass-through contract, you skip that premium, which can make the headline rate lower, but you take on the risk of those costs rising yourself.
If the non-commodity costs fall, you benefit on a pass-through and would not on a fix. If they rise, the reverse is true. It is a straight swap of certainty for exposure.
Strengths and trade-offs
The strength is a potentially lower rate and full visibility of what you are paying for, with no hidden premium on the variable costs. For a large user, even a small saving on the rate adds up across a lot of units.
The trade-off is uncertainty. Your costs can move during the term, which makes budgeting harder, and you carry the risk that network or policy charges climb. It also takes more attention to manage than a simple fix.
Who it suits
Pass-through contracts tend to suit larger energy users, often on a half-hourly meter, who can absorb some price movement and want to avoid paying a premium for certainty they do not need. They reward businesses with the appetite and the resources to keep an eye on their costs.
For a small business that values a single predictable rate, a fully fixed contract is usually the better fit. The lower headline rate on a pass-through is only worth it if you can handle the variability behind it.
What to watch for
The main thing to watch is that a low headline rate is not the whole story. Because the non-commodity costs are passed through separately, two quotes are only comparable once you account for how each treats those costs. A keen wholesale rate can be offset by network and policy charges that land later.
It is worth being clear, before you sign, on exactly which costs are fixed and which are passed through, so there are no surprises when the first variable charges appear.
Comparing and renewing
When comparing a pass-through against a fixed deal, look past the headline and at the total expected cost, including how the variable elements are likely to behave. The same discipline applies at renewal: know your end date and weigh the options on the all-in cost rather than the advertised rate.
For the wider context of how these components fit a commercial bill, our business energy overview covers the moving parts, and a flexible procurement arrangement is the next step up in complexity for the largest buyers.
Frequently asked questions
What is a pass-through contract?
A pass-through contract fixes the wholesale energy cost of your price but passes the non-commodity costs, such as network charges and policy levies, through to you at whatever they turn out to be. So part of your rate is locked and part can move during the term.
What does pass-through mean on an energy contract?
It means the supplier passes certain costs straight to you at their actual level, rather than fixing them and adding a risk premium. In practice the wholesale energy is fixed and the network and policy costs are passed through.
How is a pass-through contract different from a fixed one?
A fixed contract locks every element of the rate, including network and policy costs, for a price premium. A pass-through fixes only the wholesale energy and lets the other costs flow through at cost, so the rate can move but there is no premium for that part.
Is a pass-through contract cheaper?
The headline rate is often lower because the supplier is not pricing in a risk premium on the variable costs. Whether it works out cheaper overall depends on how network and policy charges move during the term, which you carry the risk on.
What are non-commodity costs?
They are everything in your unit rate other than the wholesale energy itself: network charges for using the wires and pipes, and policy costs such as the Climate Change Levy and the Nuclear RAB Levy. A pass-through contract passes these through at cost.
Can my costs go up during a pass-through contract?
Yes. Because the non-commodity costs are passed through at their actual level, your effective rate can rise if those charges increase during the term. It can also fall if they decrease.
Who should use a pass-through contract?
Typically larger energy users, often on half-hourly meters, who can absorb some price movement and prefer to avoid paying a premium for certainty. Smaller businesses that want one predictable rate usually suit a fully fixed contract better.
Are pass-through costs shown on the bill?
Often, yes. Many pass-through contracts itemise the network and policy charges rather than bundling them into a single rate, which gives you visibility of exactly what you are paying for.
What is a semi-fixed contract?
It is another name for a pass-through contract, reflecting that part of the price is fixed (the wholesale energy) and part is left to float (the non-commodity costs).
How do I compare a pass-through quote with a fixed one?
Look beyond the headline rate at the total expected cost, taking account of how each contract treats the network and policy charges. A low wholesale rate on a pass-through can be offset by variable costs that land later.
Does a pass-through contract suit a small business?
Usually not. The benefit is a keener rate in exchange for accepting price movement, which is more valuable to large users. Most small businesses prefer the single predictable rate of a fixed contract.
What should I check before signing a pass-through contract?
Be clear on exactly which costs are fixed and which are passed through, and how the variable charges are likely to behave, so there are no surprises when the first non-commodity charges appear.