TL;DR: Key Takeaways
The Lowest Price Isn’t Always the Best Deal: Volume tolerance clauses can turn the “cheapest” contract into a penalty trap if your usage doesn’t match the supplier’s minimum requirements.
Take-or-Pay Explained: Suppliers commit to buying your energy upfront. If you use less than forecast, they may charge you for the unused portion. If you use more, you may pay expensive spot rates.
Watch for Absolute Thresholds: Some contracts set minimum kWh requirements (e.g., 1,200 kWh/month) that act as hidden traps for small businesses with modest consumption.
Fit Matters More Than Price: A supplier can be excellent for larger businesses but completely wrong for a small SME. The contract must fit your usage pattern.
Read the Fine Print: Most comparison sites rank by price alone. The real cost is in the Terms & Conditions.
Everyone Focuses on the Wrong Number
When you shop for business energy, your eyes naturally go to the lowest price per kWh. That makes sense - it’s the obvious number to compare.
If Supplier A offers 22p/kWh and Supplier B offers 25p/kWh, the choice seems easy. You take Supplier A and congratulate yourself on saving money.
But in the energy market, the lowest price can sometimes come with handcuffs.
One of the most dangerous handcuffs is the Volume Tolerance Clause.
How Energy Buying Actually Works
To understand why this clause exists, you need to understand what happens the moment you sign a contract.
When you tell a supplier you’ll use 10,000 kWh this year, they don’t just wait and see. They go to a generator and make a financial commitment to buy the vast majority (typically 70-90%) of that power upfront.
That means they’ve effectively “spent the cash” to buy your energy at the wholesale rate before you’ve used a single unit. They only recoup that investment slowly over your 1, 2, or 3-year contract as you pay your monthly bills.
If you suddenly stop using power, they’re left holding energy they bought for you but can’t sell to you.
The Grid Balancing Act
It goes deeper than just buying power. Suppliers have a legal responsibility to the Grid.
From a high-level view, it works like this:
Every day, suppliers must tell NESO (National Energy System Operator) (opens in new tab) exactly what their portfolio is going to use. The supplier is responsible for balancing that demand.
- If they buy too little and you use too much, they are short
- If they buy too much and you use too little, they are long
In both cases, they get hit with a Balancing Mechanism (opens in new tab) charge. The grid must always be balanced - there must be a buyer for every seller. According to NESO, the Balancing Mechanism is their “primary tool to balance supply and demand on GB’s network” - with instructions issued thousands of times daily to keep the system stable. If a supplier gets their forecast wrong because you changed your usage, they face penalties.
Crucially, if they’re “Long” (because you used less power), they cannot just store that energy in a cupboard. They’re forced to “cash out” that excess energy back to the grid. The price they get for selling it back (the System Sell Price) is often significantly lower than the price they paid to buy it.
So not only do they lose your revenue - they also take a direct loss on the wholesale market.
That’s why these clauses exist. Suppliers aren’t trying to be difficult; they’re managing genuine financial and grid-balancing risk.
The “Take-or-Pay” Trap
To manage this risk, almost all contracts include a Volume Tolerance clause. According to Cost Advice (opens in new tab), the standard structure is a percentage range:
Use within +/- 10% or +/- 20% of your estimate, and we’re cool.
If you breach this, suppliers can penalise you. They might charge you for the unused energy anyway (a “Take-or-Pay” penalty) or re-price your contract to Deemed Rates - which can be 30-50% higher than your agreed rate.
As EDF Energy explains (opens in new tab), different contracts have different tolerance levels:
- Fixed + Protect: 20% variation allowed without charge
- Fixed + Reflective: 10% tolerance threshold
- Fixed + Peace of Mind: No limit - unlimited usage variation without penalties
While a +/- 10% or +/- 20% tolerance is standard, some contracts use absolute thresholds that act as a trap for small businesses.
Real Example: The “Cheapest” Quote That Wasn’t
We recently helped Dream Looks Boutique, a small beauty business using about 6,039 kWh per year.
On paper, one supplier looked like the winner. Their unit rate offered a 51% annual saving compared to the client’s current costs (they were on deemed rates). It was the lowest price on the table.
But then our AI scanned the full Terms & Conditions.
George flagged a clause in the small print. It was something along the lines of:
The supplier reserves the right to increase the charges if the customer uses less than 1,200 kWh of electricity per month.
Do the maths:
- Dream Looks Boutique uses 6,039 kWh per year
- That averages to ~503 kWh per month
- The contract demanded a minimum of 1,200 kWh per month
If the client had signed this “lowest price” contract, they would have been in breach on Day 1. The supplier would have had the right to change their rates immediately.
It’s About “Fit,” Not “Quality”
We want to be clear: the supplier in question is an excellent provider. They’re reliable, renewable-focused, and a great choice for larger businesses that consume higher volumes.
They have every right to protect their hedging position with these thresholds. The problem wasn’t the supplier; the problem was the fit.
For a larger business, that contract would have been perfect. For a small boutique using 500 kWh/month, it was a ticking time bomb.
The Better Choice
Instead of the “lowest price” deal, we recommended an alternative supplier:
- The Rate: It offered a 46% saving (slightly less than the cheapest quote)
- The Terms: Crucially, their contract did not have an absolute 1,200 kWh floor
By paying a fraction of a penny more per unit, the client got a contract they could actually stick to - securing real savings rather than theoretical ones.
Who Needs to Worry Most?
According to Sorola Energy (opens in new tab), volume tolerance affects nearly all UK business electricity fixed-rate contracts. But the risk varies significantly based on your business size and usage patterns.
The Numbers: UK SME Energy Consumption
According to Utility Bidder’s 2025 business energy statistics (opens in new tab), typical UK SME consumption falls into these bands:
| Business Size | Annual Electricity | Monthly Average |
|---|---|---|
| Microbusiness (<10 employees) | 5,000 - 15,000 kWh | 417 - 1,250 kWh |
| Small business (10-49 employees) | 15,000 - 25,000 kWh | 1,250 - 2,083 kWh |
| Medium business (50-250 employees) | 25,000 - 50,000 kWh | 2,083 - 4,167 kWh |
Here’s the problem: contracts with absolute monthly minimums of 1,000-1,500 kWh are designed for small-to-medium businesses. If you’re a microbusiness averaging 500 kWh/month, you’ll never meet those thresholds.
The same research shows that 22% of small businesses report energy costs affecting their growth - and hidden penalties from volume tolerance breaches only make this worse.
Risk Categories
Lower Risk:
- Businesses with stable, predictable consumption
- Usage patterns that haven’t changed significantly in 2+ years
- Accurate historical data used for forecasting
- Consumption comfortably above any contract minimums
Higher Risk:
- Seasonal businesses (hospitality, retail, tourism)
- Growing or shrinking businesses
- New premises without usage history
- Businesses changing operations (adding equipment, changing hours)
- Microbusinesses with consumption under 15,000 kWh/year
The real danger comes when price volatility meets volume mismatch. If wholesale prices spike while you’re under-consuming, the supplier’s losses (and your penalty) multiply.
How to Protect Yourself
Before signing any energy contract:
1. Get the Full Terms & Conditions
Don’t just look at the quote summary. Request the complete T&Cs and search for terms like:
- “Volume tolerance”
- “Take-or-pay”
- “Minimum consumption”
- “Usage threshold”
- “Reconciliation charges”
2. Check for Absolute Thresholds
Look for clauses specifying minimum kWh requirements. Calculate whether your business consistently meets these minimums. If your typical usage falls below the minimum, you’ll breach the contract from day one.
3. Use Actual Meter Reads
As Cost Advice recommends (opens in new tab), ensure your Estimated Annual Consumption (EAC) is calculated from actual meter reads, not estimates. This gives you a more accurate baseline and reduces the risk of tolerance breaches.
4. Ask Direct Questions
Email or call the supplier:
- “What is your volume tolerance band?”
- “What happens if my usage falls outside this band?”
- “Are there any absolute kWh minimums?”
Get responses in writing.
5. Consider the Total Cost
A contract at 23p/kWh with no tolerance restrictions may cost less overall than a contract at 21p/kWh that triggers £1,000 in penalty charges.
Why Meet George is Different
Most comparison sites just rank by price. They don’t read the PDF.
We built Meet George to be different. Our AI doesn’t just look at the unit rate; it reads the fine print. It understands that a small boutique uses energy differently than a factory, and it flags clauses - like “Take-or-Pay” floors - that are incompatible with your business type.
This is why our “Ask George” feature is so crucial. You can upload your quote or contract and ask questions like:
- “Are there any volume tolerance clauses in this contract?”
- “What happens if my usage drops by 30%?”
- “Is there a minimum kWh requirement?”
George reads the full document - including the Terms & Conditions that most people skip - and gives you a plain-English answer. No more signing contracts with hidden traps you didn’t understand.
We don’t just find you the cheapest rate. We find you the contract you won’t regret signing.
Switching soon? Learn how to switch business energy step-by-step, or understand what happens when your contract ends and you roll onto deemed rates.
Worried about your current contract? Read our guide on whether you can cancel a business energy contract early.