What to consider when you compare business energy
When deciding which business energy supplier is the best fit for your needs, you should consider the following:
- the unit rate and standing charge you are quoted
- what kind of tariff suits your business
- whether the energy comes from renewable sources
- the length of the proposed contract
- the notice period of the contract
- whether the contract has a cooling-off period
- the cost of any additional charges, such as maintenance charges
- if you are using an energy broker, how much they will charge
» COMPARE: Business electricity
Who should get business energy?
What kind of business energy plan is best for you will in part be determined by the size of your business. The larger your business, usually the lower your unit rate and standing charge.
You should also be aware that there are two types of business, which have slightly different rules when it comes to business energy: micro businesses, and charities and non-profit organisations.
Micro businesses
In the eyes of energy suppliers, you are a micro business if you meet just one of the below criteria:
- your annual electricity usage is less than 100,000kWh
- your annual gas usage is less than 293,000 kWh
- you have fewer than 10 employees, and your yearly turnover is less than €2 million
This means that most small businesses in the UK would be classed as micro businesses.
If you do qualify as a micro business, the energy regulator, the Office of Gas and Electricity Markets (Ofgem), rules mean that in Great Britain you can expect:
- plain, easy-to-understand language in your contract
- greater transparency around the details of your contract, including brokerage costs and expiry dates
- a shortened notice period of 30 days
- a 14-day cooling-off period if you change your mind
- a renewal cap of 12 months if you let your contract roll over
- not to be back-billed for unpaid business energy used more than 12 months ago
One protection in place for micro businesses in Northern Ireland, as dictated by the Utility Regulator (UR), is a 13-month limit on energy backbills for gas and electricity.
If you run your business out of your home, you may not need a business energy contract. Instead, you may want to continue using your household energy.
Charities and non-profit organisations
If you run a charity or non-profit organisation, you may be eligible for the reduced VAT rate. This would take the amount of VAT you pay on your energy from the standard 20% down to 5%.
You would also be exempt from paying the Climate Change Levy (CCL), which can reduce your bills by a further 5%.
Types of business energy tariffs
There are multiple kinds of business tariff contracts available. These include the following:
Fixed rate
This is where you pay a fixed unit rate in kilowatts per hour (kWh), for a fixed period of time, i.e. the length of your contract. Your bill will be based on your energy usage.
With a fixed-rate tariff, you can benefit from stability. Although your usage may rise and fall, you will at least always know how much you are being charged per unit. However, it also means that you may miss out on any falls in the wholesale price of gas and electricity.
Variable rate
Unlike a fixed rate, your unit rate on a variable tariff will rise and fall based on market activity, namely wholesale energy prices. This means your unit rate will vary throughout your contract. This could end up costing you more or less money in bills than a fixed-rate contract, depending on how rates vary.
Deemed rate
A deemed rate is normally among the most expensive business energy tariffs out there. It will be in place because you have just moved into a new business premises and are yet to negotiate your own contract with a business energy supplier.
However, you are free to switch suppliers when under a deemed contract, as there is no expiry date involved.
Out-of-contract rate
If you reach the end of your contract with your business energy supplier, and fail to either switch to a new supplier or sign a new contract with your existing supplier, you will be charged at an out-of-contract rate.
This is typically more expensive than a deemed rate, as you have ‘chosen’ not to source a new contract.
Flexible rate
A flexible business energy rate would allow your business to purchase blocks of energy throughout your fixed-term contract. The flexibility also extends to how far in advance you want to buy energy.
Flexible tariffs can allow you to be flexible with your energy usage, but may also require more time and knowledge to implement.
Pass through tariff
With a ‘pass through’ tariff, you would agree to some rates and charges at the start of your contract, with the remaining fluctuating costs appearing as a separate charge on your bill. Unit rates can be cheaper with pass through contracts, as your business is assuming more risk by not locking in all of the rates ahead of time. This means what you may lose in price stability, you could make up in savings.
Extended tariff
Some suppliers may offer an extended tariff. This would allow you to extend the length of your existing contract with the same supplier.
Extended tariffs may allow you to continue to benefit from an existing good deal. However, they may also mean you miss out on a cheaper deal you may have found if you compared other business energy providers.
Is it better to choose a fixed or variable tariff?
Whether you choose a fixed or variable tariff is down to what you want to prioritise when it comes to business energy.
If you want to know exactly how much you will be charged for your energy usage, and budget accordingly, then you may want to consider a fixed tariff.
However, if you want to take advantage of movements in the price of wholesale gas and electricity, and are willing to assume the risk of your bills rising as well as falling, you may want to look into a variable tariff.
Are dual fuel business energy tariffs available?
Unlike with domestic energy, you usually cannot get a dual fuel business energy tariff.
A dual fuel tariff is when you get both your electricity and gas from the same supplier, under the same contract.
You can still get your business gas and electricity from the same supplier, but under individual contracts.
However this does mean that you are free to pick the cheapest business gas tariff and the cheapest business electricity deal, even if they come from different suppliers.
How do business energy contracts work?
There are a number of aspects to a business energy contract that may be unfamiliar if you have only ever dealt with domestic energy.
What does single-fuel mean?
Business energy contracts are typically single fuel. This means you will need to get separate contracts for your business gas and business electricity, even if they both end up coming from the same supplier.
How long are business energy contracts?
Business energy contracts can be between 12 months and five years long. According to Ofgem, most business energy contracts last from one to three years.
This means that business energy contracts are usually longer than a domestic energy contract.
Do I need to physically sign a business energy contract?
You don’t need to sign a business energy contract for it to be binding – an agreement over the phone can also bind you to a specific deal.
Is there a cooling-off period for business energy contracts?
Most business energy suppliers will not offer a cooling-off period for your contract.
However, some suppliers may do this so if this is important to you, find out before signing the contract.
If you are a micro business, suppliers are required to offer a cooling-off period of 14 days.
How are business energy rates calculated?
Your business energy bill will normally contain the following charges:
- Unit rate – the amount you pay per kilowatt hour (kWh) of electricity or gas. This will usually be split into a day rate and a night rate. The unit rate will be multiplied by your per kWh usage, and this figure will likely make up the biggest part of your bill.
- Standing charge – the daily rate you pay for gas and electricity to be supplied to your business, regardless of how much you use.
- Climate Change Levy (CCL) – the government levy paid for every unit of energy your business uses.
- VAT – charged at 20% for most businesses, or 5% for those eligible for the reduced rate.
- IGT charges – fees paid if your gas is supplied by an independent gas transporter.
What is the Climate Change Levy (CCL)?
The Climate Change Levy (CCL) is an environmental tax you pay on every unit of business electricity and gas your organisation consumes.
First introduced in April 2001, the CCL initially included an exemption for renewable electricity. However, that exemption was removed in the Summer Budget 2015.
If you pay the standard 20% rate of VAT, you will likely be charged the CCL. If you pay the reduced VAT rate of 5%, it is likely that you won’t.
In order to be exempt from paying the CCL, you need to use an average of less than:
- 33 kWh per day, or 1,000 kWh per month, for electricity
- 145 kWh per day, or 4,397 kWh per month, for gas
What can affect a business energy quote?
There are a range of factors that can influence the business energy quote you receive, including:
- the cost of wholesale gas and electricity
- the cost of the supplier’s standing charges and other fees
- the type of tariff you are searching for
- your current usage
- whether you are using a business energy broker
How much will a business energy broker charge?
How much a business energy broker charges will depend on both the broker in question, and how they make their money.
A business energy broker will either:
- charge a commission, calculated at a unit rate per kilowatt hour that is added to the kWh unit cost set by your business gas or electricity supplier
- take a share of savings payment, based on the percentage amount you have saved by using their services
- submit an upfront invoice detailing their fixed monthly fee
If your energy broker fails to provide you with a full written disclosure detailing how much they have earned from your contract, you may be entitled to make a business energy claim.
Difference between domestic and business energy
When compared to domestic energy contracts, business energy contracts:
- are typically longer
- usually do not have cooling-off periods, unless you are a micro business
- are single fuel, rather than dual fuel
- can accommodate multiple businesses premises or locations
- may be cheaper on a per unit cost basis
- are not capped by Ofgem
Is business energy cheaper than domestic energy?
Although it can be hard to directly compare the two, suppliers get better rates for business energy than domestic energy as they are buying in bulk to last for the whole contract. These savings are usually passed on to the commercial consumer. As domestic energy is usually bought monthly, there is less money saved by the supplier and, in turn, the resident.
When weighing up domestic and business energy, you need to make sure you calculate your expected usage, and whether business energy remains cheaper than domestic energy once VAT and the CCL are factored in. For example, if you are working from home, business energy may not always be cheaper.
Are business energy prices capped?
Businesses in Great Britain are not protected by Ofgem’s energy price cap. This means that normally there is no maximum limit a business can be charged for their annual energy consumption. In Northern Ireland, there is no such energy price cap for domestic or business customers.
However, the introduction of the Energy Bill Relief Scheme limits the wholesale price suppliers can charge businesses for electricity and gas from 1 October 2022 to 31 March 2023.
Can businesses use renewable energy and how?
Many providers offer green energy tariffs where at least some, if not all, of the energy you use comes from renewable sources. You should be able to check their fuel mix – i.e. the percentage make-up of how their energy is generated – on the supplier’s website.
You may also want to consider installing your own renewable energy sources, such as commercial solar panels.
» MORE: Renewable business energy
