Many UK businesses and households unknowingly pay more for energy because they are on Deemed Rate Charges. These rates apply when there is no signed contract in place, such as when moving into a new property or letting a contract expire.
In this article , we explain why deemed rates are usually higher, how they are calculated, and how you can avoid them to save money on your energy bills.

What Are Deemed Electricity Rates?

Deemed Rate Regulation are the default prices you pay when you are using electricity without signing a contract with the supplier.

They usually happen when:

• You move into a new property (business premises or sometimes a new tenancy) and have not agreed a tariff yet.
  
• Your previous contract ends and you do not renew or agree to a new deal.
  

You are still supplied with electricity  but the supplier places you on a deemed contract/tariff which is often more expensive because it is not negotiated and the supplier can not predict your usage. It normally continues on a rolling basis until you sign a new contract or switch.

Why Deemed Electricity Pricing Are More Expensive

Deemed electricity rates tend to be higher than regular tariffs for several reasons

• No Contract = No Negotiation: Without a signed contract suppliers cannot predict usage which makes it riskier for them. To offset this they charge higher rates.
  
• Higher Risk for Suppliers: Since deemed customers have not committed long-term suppliers charge more to cover the potential financial risks.
  

• Rolling Monthly Rates: Deemed rates are often applied on a monthly basis which means no price lock-in. Fixed tariffs on the other hand  provide more stability at a lower price.

These factors make deemed rates a temporary solution that can lead to higher costs for businesses and households if left unstopped.

How Are Deemed Rates Calculated?

Deemed Billing Rates are calculated based on several factors

1. Energy Consumption: The number of electricity you use will directly impact your bill. Higher usage means Higher prices.
2. Supplier Risk: Without a deal suppliers can not expect how much energy you will use so they charge more to cover ability risks.
3. Unit and Standing Charges: Deemed rates include both unit charges (cost per kWh of electricity used) and standing charges (daily fees to maintain your connection). These factors combine to make deemed rates generally higher than fixed rates as suppliers seek to cover the confusion of your energy consumption.

Common Misconceptions About Deemed Rates

There are several misconceptions about Deemed electricityTariffs that can lead to confusion and unfortunately higher energy costs. Let us clear up some of the most common myths.

1. Deemed rates are the same as regular tariffs

• False: Deemed rates are typically much higher than regular energy tariffs. While regular tariffs are usually negotiated between the supplier and the customer, deemed rates are applied when no contract is in place and suppliers do not have the same ability to predict usage. 

As a result, deemed rates are often designed to cover the supplier’s financial risk, leading to significantly higher prices. The lack of a formal agreement means that suppliers are unable to forecast usage accurately so they charge a premium to mitigate any potential loss.

2. You can not switch suppliers if you are on deemed rates

• False: You can switch to a new energy supplier at any time even if you are currently on deemed rates. In fact staying on deemed rates is usually a bad idea  and switching to a fixed contract can save you money. Many people by mistake believe that they are stuck with the supplier  but in reality  switching suppliers is an easy and straightforward process. It is essential to shop around and find a more cost effective tariff that suits your usage.
  

3. Deemed rates are fixed and will not change

• False: Deemed rates can change. They are often more volatile because suppliers adjust them based on factors like market conditions and the supplier’s internal policies. Since there is no fixed agreement the price can fluctuate leaving you vulnerable to sudden increases. 

By contrast a fixed-rate contract locks in your energy price for a set period offering greater stability and protection from unexpected price hikes.

Risks of Staying on Deemed Rates

Remaining on deemed electricity rates may seem like a temporary solution but it comes with several significant risks that could cost you much more in the long run. Here are the key risks of staying at deemed rates.

1. Unpredictable and Higher Costs

Deemed rates are generally much higher than standard or fixed-rate tariffs. This is because without a signed contract  the energy supplier cannot accurately predict your usage or guarantee a long-term relationship. 

As a result  suppliers charge higher rates to account for the uncertainty  and you end up paying more for your electricity. Additionally deemed rates are often subject to Change meaning your bills can increase unexpectedly. 

Unlike fixed-rate contracts which lock in a price for a set term, deemed rates leave you helpless to price hikes at any time making it harder to budget and manage your energy costs effectively.

2. Financial Consequences

Staying on deemed rates can lead to significant financial strain. For example if you are paying 50p/kWh on a deemed rate but could be paying 25p/kWh with a fixed contract the difference can result in hundreds or even thousands of pounds in extra energy charges each year. 

Over time these additional charges add up especially for businesses that use large amounts of electricity. In some cases businesses and households that remain on deemed tariffs year after year end up spending far more than they would if they took the time to compare energy deals and switch to a more competitive rate.

3. Missed Savings Opportunities

One of the most significant risks of staying on deemed rates is the missed opportunity to save. Energy suppliers often offer lower rates discounts and fixed-price contracts to attract new customers. These rates are often much more affordable than deemed rates allowing you to lock in an expected monthly cost and avoid the uncertainty of price fluctuations. 

By failing to shop around or renew your energy contract you are missing out on potential savings. Whether you are running a business or managing your household bills, staying at deemed rates means you are paying more than necessary and missing out on better offers and deals that could significantly lower your energy costs.

How to Avoid or Move Off deemed energy rates UK

To avoid high costs it is essential to understand how to move off deemed energy rates and switch to a more suitable tariff in the UK.

1. Check Your Current Energy Bill
   Review your energy bill to confirm if you are at a deemed rate. Look for terms like Deemed or Default tariff to identify the higher rates. If you find that you are being charged more than expected, take action right away to prevent overpaying.
2. Compare Energy Tariffs
   Use comparison websites like Uswitch Compare the Market or Energy helpline to find the best deals. These sites help you compare fixed and variable tariffs and show you the most challenging prices from multiple suppliers. Switching to a fixed rate contract often leads to more predictable lower bills.
3. Switch to a New Supplier
   Once you have found a better deal, switch to a new supplier. The switching process is usually free and takes around 3 to 4 weeks during which time your energy supply will not be interrupted. This simple step can save you significant money and prevent you from being stuck on expensive deemed rates.

Real-Life Examples of Deemed Rate Savings

Switching off deemed electricity rates can lead to significant savings. Let’s explore a few real life examples of how businesses and households have benefited from moving to fixed or standard tariffs.

Example 1: Small Business Savings

A small business in Birmingham was placed on a deemed rate of 50p/kWh after moving into a new office. The business owner was unaware of the high rates until they noticed an unusually high monthly bill of around £900.

After reviewing their options the owner used an energy comparison site to switch to a fixed-rate contract at 28p/kWh. The new rate lowered their monthly bill to approximately £550 saving them around £350 per month.

• Deemed rate: 50p/kWh
  
• Fixed-rate contract: 28p/kWh
  
• Monthly savings: £350
  
• Annual savings: £4,200
  

This example demonstrates that businesses can greatly reduce their energy costs simply by moving off deemed rates and choosing for a fixed contract.

Example 2: Household Savings

A family in Manchester was living in a rented home and By mistake remained on a deemed rate of 48p/kWh for several months. Their energy bills were higher than expected, adding up £120 per month.

After reviewing their energy bills and comparing rates they switched to a standard rate contract at 26p/kWh.Their monthly bill dropped to about £85 saving them approximately £35 each month.

• Deemed rate: 48p/kWh
  
• Standard rate contract: 26p/kWh
  
• Monthly savings: £35
  
• Annual savings: £420
  

This example shows how households can save money by moving off higher deemed rates and Locking a more affordable tariff.

Conclusion

Deemed electricity rates are often higher due to the absence of a contract. Without a fixed rate you could face shifting costly bills.To prevent paying too much check your bill and compare rates. Switching to a flat rate contract can save you money and provide price security. 

Performing fast is key to reducing your energy costs. Do not wait, take control and start storing today.

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FAQs

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