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What is business energy?
Business energy – sometimes known as commercial energy – is the same as household energy in many ways.
It is the gas and electricity that powers your business activities from common fixtures, such as lights and appliances, to more energy-intensive practices dictated by your sector.
» COMPARE: Business energy electricity
But while the energy may come from the same source, and potentially even the same supplier as your household gas and electricity, it is treated differently by providers.
The biggest difference is that you will typically need separate contracts for gas and electricity. And these contracts will usually be for a fixed period of time, normally one to three years, rather than the rolling contracts found in household energy.
» COMPARE: Business energy gas
How do I switch my business energy supplier?
As with household energy, switching your business energy supplier can save you money in the long run.
However, you would most likely need to pay an exit fee to leave a fixed-term business energy contract if you wanted to switch before the contract expires.
Therefore it may not be worth switching suppliers until your business energy contract ends. You will then need to check the terms of your contract to see if you need to give notice to your current supplier.
You can also switch energy suppliers if you are on a deemed or default contract. These are contracts you have not chosen – for example, because you have moved into a new business premises.
You should closely monitor the business energy market as rates regularly change based on the daily wholesale price of gas and electricity. This means timing your switch is important if you want to maximise the amount of money you might save.
When switching business energy suppliers you can either go to the supplier directly, or through an energy broker. A broker may be able to secure you a better price, for a fee.
To switch, you may need to provide:
- your business postcode
- the name of your current supplier
- the terms of your current contract
- your energy costs per unit and standing charges
- your annual energy usage
Once you have decided to make the switch, it normally takes between three and six weeks for the change to take place.
How do I start an energy contract for my business?
In order to get a quote for a business energy tariff, you will normally need to provide your business postcode and energy usage for a certain period of time (this could be a year, a six months, or a quarter, for example).
You should make sure you compare multiple energy suppliers to find the best tariff for your business. And if using an energy broker, ask them which suppliers they represent so you know you are getting the broadest comparison possible.
When applying, you will be asked your company type, when you want your energy contract to start, and your payment details.
Depending on the size and nature of your business, you may also be eligible for business energy efficiency grants and schemes. You can search for government support at Gov.uk.
What is a good business energy rate?
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.
- Standing charge – the daily rate you pay for energy to be supplied to your business, regardless of how much you use.
- Climate Change Levy (CCL) – the government levy paid for every unit of non-renewable 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.
Since business energy quotes are based on daily wholesale gas and electricity prices, there are a number of external factors that can influence the tariffs on offer. These include supply and demand issues, storage problems, currency fluctuations and the weather.
These issues can also contribute to the ‘hidden costs’ that are often a part of business energy bills.
When searching for a good business energy rate, it may be useful to bear in mind the averages below:
Average business gas prices per kWh
| Business size | Annual usage (kWh) | Price per kWh | Standing charge (daily) |
|---|---|---|---|
| Micro business | 5,000 - 15,000 | 3.9p - 4.5p | 25p - 37p |
| Small business | 15,000 - 30,000 | 3.8p - 4.5p | 25p - 45p |
| Medium business | 30,000 - 65,000 | 3.4p - 4.2p | 25p - 61p |
Average business electricity prices per kWh
| Business size | Annual usage (kWh) | Price per kWh | Standing charge (daily) |
|---|---|---|---|
| Micro business | 5,000 - 15,000 | 16.6p - 18p | 25p - 32.5p |
| Small business | 15,000 - 30,000 | 16.2p - 17.7p | 25p - 34.5p |
| Medium business | 30,000 - 65,000 | 16p - 17p | 25p - 33.8p |
Sources: Bionic, Business Energy and Upower
What are the business tariff options?
There are multiple different kinds of business tariff contracts available. These include the following:
Fixed rates
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.
Variable rates
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.
Pass through
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.
There are a number of other tariffs you could also consider, such as a green tariff that uses renewable sources of energy, or a multi-site tariff if your business has more than one location.
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 (around £1.71m).
This means that most small businesses in the UK would be classed as micro businesses.
If you do qualify as a micro business, Ofgem rules mean 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
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%.
How to choose the best business energy supplier for me?
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
To help you with your decision, take a look at our business energy comparison page.
Once you have entered your postcode on the page, you will be asked to submit further details, including your business name, whether you are searching for gas or electricity, the name of your current supplier, and your current usage.
Then, click ‘See Results’ and you will be shown the deals available to your business, including how much money your business could save by switching suppliers.
You can filter these results by supplier or by how long the price is fixed for.
Business Energy FAQs
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 will 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 do I reduce energy consumption in business?
Other than ensuring you are on the most competitive contract, being energy efficient is the other major way to reduce your business energy costs.
From using low-consumption appliances, energy-saving light bulbs and good insulation to instigating changes to the way you and your employees use energy, it is possible to ensure you use only the energy your business needs.
One way to do this is by creating a business energy audit. This will help you spot where you can make improvements and help your business become as energy efficient as possible.
How can businesses use renewable energy?
Many providers offer green energy tariffs, where at least some, if not all, of the energy you use comes from renewable sources.
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.
Can a small business have a domestic energy contract?
Yes, a small business can have a domestic energy contract.
It is worth checking to see if your small business is actually classed as a micro business, as there are consumer-friendly rules surrounding micro business energy that may be of benefit to your company.
Can I leave my business energy contract?
No, normally you cannot leave your business energy contract early.
If you want to switch providers, you will usually wait until the end of your contract and then give the notice period as specified in your contract.
Should I change my business energy supplier every year?
It may not be possible to change business energy suppliers every year, as many contracts will run from any time between one and five years.
When you do eventually look for a new supplier, it is important to do your research and make sure you time your switch correctly, as changes in wholesale energy prices will affect which tariffs are on offer.
Is the cheapest business energy quote the best option for me?
Although the cheapest business energy quote may be appealing, it is always worth considering a few other factors as well.
These include the customer service of the supplier in question, the length of the contract, the notice period of the contract, and whether or not the tariff uses renewable energy.
You should also check whether the quote includes VAT, CCL and other charges.
Will my business energy supply be disrupted when I switch?
No, when you switch business energy suppliers the energy supply itself will not be disrupted.
Do business energy quotes include VAT?
Once you have submitted your details to Love Energy Savings and have your list of quotes, you can click on the quote from each supplier and see how much the bill would be including VAT.
How do I check who my business energy supplier is?
Your business energy supplier should be named on your energy bill. If you have recently moved into a new business premises, you can ask the landlord or previous tenant.
If you cannot find your energy bill or contact the previous occupants, you can use the Meter Point Administration Service to find your gas supplier, and the Energy Network Association search tool to find your electricity provider.
Can I get a dual fuel deal in my commercial energy contract?
No, you cannot get a dual fuel deal for business energy. Instead, you will need to agree to separate contracts for gas and electricity.
Although these can be from the same supplier, it doesn’t mean that it will be the cheapest option. One supplier may have the best deal for your electricity needs, while a different provider may be better for gas.
Connor is a writer and spokesperson for NerdWallet. Previously at Spreadex, his market commentary has been quoted in the likes of the BBC, The Guardian, Evening Standard, Reuters and The Independent. Read more