How does business energy work for small businesses? | moneyfacts.co.uk

Michelle Monck

Michelle Monck

Consumer Finance Expert
Published: 19/11/2020

At a glance

  • Business premises tend to use far more energy than typical households, so finding the right business energy deal is vital.
  • The unit price of business energy is typically cheaper, but there are a lot more components to a commercial bill that means the cost can add up.
  • If you’re thinking of switching, make sure to compare business energy quotes to find the best possible deal.

 

Getting the right energy deal can be vital to the smooth-running of your business. Not only do these premises tend to use far more energy than average households, but if the power goes out your profitability could be on the line, which is why comparing business energy quotes and finding the best possible supplier is essential. Here we take a look at the business energy sector in more detail, along with how to find quotes and switch providers, ultimately ensuring you get the right deal.

What is the difference between domestic and commercial electricity?

While the energy that goes to business and domestic properties is essentially the same, the contracts – and therefore the quotes – are different. Suppliers have different criteria for business customers and charge different prices accordingly; VAT is higher for business energy, for example (20% instead of 5%), contract terms are longer, there isn’t a cooling-off period and the whole quoting process will be more complex with a lot more information required.

But on the flip side, the unit price is typically cheaper thanks to economies of scale – the larger the business and the more energy required, the cheaper the rate will be – which means businesses are able to negotiate on price and are offered tailored rates, something that isn’t possible for domestic customers.

Is business energy cheaper than domestic?

Not necessarily. As discussed above, the unit price may be cheaper for business customers than domestic, but the other facets of business energy use mean it isn’t always that simple. For starters, business customers will be subject to the Climate Change Levy, which will add to the overall cost (other levies may also be applicable), as well as higher VAT and different pricing structures.

Prices will be tailored according to the business, with criteria such as location, contract length, business type, payment method and credit score all having an impact, and if you’ve got a half-hourly meter the estimates can be even more personalised. However, the sheer amount of energy required means that prices will typically end up being higher for business customers, which is why finding the right tariff is so important.

What kind of business energy tariffs are there?

You’ll usually be able to choose between a fixed or variable rate tariff, with all other details tailored to your business’ needs.

Fixed tariffs

Fixed tariffs have a fixed unit price, usually based on the wholesale cost at the time your supplier purchased the energy (unlike with domestic contracts, which are based on the wholesale cost of energy bought in advance, many suppliers only purchase the energy when a commercial contract has been agreed). Terms typically range from one to five years. Bear in mind that, while the unit price will stay the same, your bills will differ depending on how much energy you use.

Variable rate tariffs

Variable rate tariffs have no such guarantee, which means the unit price can fluctuate throughout the term of the contract based on wholesale fluctuations. This means that, while the cost of energy can sometimes go down, it can also go up – and that your energy bills could change month-to-month even if your usage remains constant.

There are other types of tariff reserved for those whose contract comes to an end but don’t arrange a new one – and they’re normally prohibitively expensive. Deemed rates and rollover tariffs are two examples, and they can result in price increases of as much as 50%.

You may also be able to find green energy tariffs – much like with domestic energy – and can sometimes reduce the cost if you pay by direct debit. It’s also worth bearing in mind that dual fuel bills are normally not an option, with gas and electricity typically having to be purchased separately.

How can I reduce energy consumption in my business?

Much like in the domestic sphere, there are plenty of ways that a business can reduce its energy consumption – and a lot of them are incredibly simple. Things like making sure employees turn off their workstations at the end of the day, switching off plug sockets when not in use, having motion-activated lights in hallways that automatically turn off when no-one’s passing through, and even things as simple as replacing lightbulbs with energy-efficient versions can make all the difference. Make sure to effectively use the air conditioning and heating systems, too – even turning down the thermostat by 1°C can cut energy bills by 8% (according to the Department of Energy and Climate Change).

Can I save money by switching?

Many businesses find that they can save a lot of money by switching energy supplier – particularly if they’re on an out-of-contract rate – so it’s definitely worth comparing quotes. Indeed, research from the Competition and Markets Authority (CMA) found that 45% of microbusinesses were on their supplier’s default rate, and as such were collectively paying £180 million too much every year. So, make sure to keep a note of your contract end date and, before it expires, start comparing the available options to see how much you could save.

How do I switch my business energy supplier?

The first step is to gather all the information you’ll need to start comparing quotes. You’ll need your current contract details – including whether you’re in an allowable “switching window” – and your current supplier’s details so you can contact them and see if they can offer you a cheaper deal. If they can’t, or if you think you could save more money elsewhere, you can start searching, either by going directly to individual suppliers or using a comparison site or energy broker.

Once you find a better deal, you’re free to switch. If you go through a broker they’ll normally be able to take care of the details for you, but if you’re going it alone, you’ll need to notify your current supplier of when you intend to switch, making sure to give as much notice as you need to. Then you can contact the new supplier and agree to the new contract.

Bear in mind that with business energy, anything agreed over the phone is binding – so don’t agree to anything until you’ve thoroughly checked the contract details and the small print.

Business energy FAQs

What consumes the most energy in a commercial building?

As a general rule, the heating, lighting and ventilation/air conditioning systems will use the most energy in a commercial building, followed by major appliances. This is why it’s important to do everything you can to boost your energy efficiency.

What is a commercial meter?

A commercial meter is used to track the energy use of a commercial property, much like domestic energy meters.

What are half-hourly meters?

Half-hourly meters are often used in businesses that consume a lot of energy. They give a supplier an accurate picture of a business’ energy use, based on half-hourly intervals – businesses will often use a lot of energy during the day, for example, but not much overnight, and tariffs can be tailored accordingly.

Is there a cooling-off period for business energy contracts?

No. Unlike with a domestic energy contract, there isn’t usually a cooling-off period for business contracts – which means comparing quotes at the outset is even more important.

Who is the best business energy supplier?

This will depend on what you’re looking for in an energy supplier. Do you want someone who’s the cheapest? Has the greenest credentials? Scores highly on customer service? It’s all about doing your research to find the best business energy supplier for your needs.

Who is the cheapest business electricity supplier?

Again, this answer depends on your business – while some suppliers will typically be cheaper than others, the only way to know for sure is to input your details and see who comes up with the best quote for your business.

What is a commercial meter?

A commercial meter is used to track the energy use of a commercial property, much like domestic energy meters.

What are half-hourly meters?

Half-hourly meters are often used in businesses that consume a lot of energy. They give a supplier an accurate picture of a business’ energy use, based on half-hourly intervals – businesses will often use a lot of energy during the day, for example, but not much overnight, and tariffs can be tailored accordingly.

Is there a cooling-off period for business energy contracts?

No. Unlike with a domestic energy contract, there isn’t usually a cooling-off period for business contracts – which means comparing quotes at the outset is even more important.

Who is the best business energy supplier?

This will depend on what you’re looking for in an energy supplier. Do you want someone who’s the cheapest? Has the greenest credentials? Scores highly on customer service? It’s all about doing your research to find the best business energy supplier for your needs.

Who is the cheapest business electricity supplier?

Again, this answer depends on your business – while some suppliers will typically be cheaper than others, the only way to know for sure is to input your details and see who comes up with the best quote for your business.

Disclaimer: This information is intended solely to provide guidance and is not financial advice. Moneyfacts will not be liable for any loss arising from your use or reliance on this information. If you are in any doubt, Moneyfacts recommends you obtain independent financial advice.

Light bulb energy

At a glance

  • Business premises tend to use far more energy than typical households, so finding the right business energy deal is vital.
  • The unit price of business energy is typically cheaper, but there are a lot more components to a commercial bill that means the cost can add up.
  • If you’re thinking of switching, make sure to compare business energy quotes to find the best possible deal.

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