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When it comes to your business energy bills, there can be a lot to get your head around. Especially if you haven’t dealt with business gas or electricity before.
But it’s worth getting to grips with what you are paying and why you are paying it.
Read on to find out what business energy tariffs are available, what affects your business energy rates, and what causes business energy prices to go up and down.
» MORE: A Quick Guide to Business Energy in the UK
Business energy tariffs
Businesses have a few energy tariff options, some of which aren’t available to domestic customers. Business energy contracts also typically last between one and five years, compared to the 12-month contracts available to domestic customers.
We explain the business energy tariff types available and what they mean below.
Fixed rate
This locks in your unit cost per kilowatt hour (kWh) for the length of your contract. This wouldn’t lock in the cost of your bill, however, as that depends on how much gas and electricity you use.
Although you won’t know your exact bill each month, a fixed-rate business energy tariff may make it easier for you to track the cost of your usage and how energy efficient your business is.
Variable rate
A variable tariff will rise and fall with the wider energy market. This means sometimes you could be paying less than a fixed-rate tariff, while at other times you could be paying more.
The risk of a variable rate is that if energy prices spike, you will end up paying a lot more for your business energy.
Deemed and out-of-contract rates
If you move into a new business premises, you will inherit the previous tenant’s business energy supplier, but not their contract. If you don’t agree to a contract ahead of time, you will be placed on a ‘deemed rate’.
An out-of-contract business energy rate, like a deemed rate, is one you haven’t chosen. It often covers the period between giving your supplier notice that you are not renewing your contract and agreeing a new contract or supplier.
These can be the most expensive business energy tariffs. However, you are free to switch suppliers, or agree to a new contract with the existing supplier, at any time.
» MORE: How to switch business energy suppliers
Rollover rate
If your business energy contract comes to an end and you haven’t agreed to a new one, you may be placed on a rollover contract.
Like deemed and out-of-contract rates, a rollover tariff is typically more expensive than your average business energy contract. However, a rollover tariff is more difficult to get out of. You may be tied to this contract for 12 months minimum. This is why it is so important to make a note of your renewal periods.
If you have nine or fewer employees, your rollover contract cannot last longer than 12 months.
Flexible rate
If you are a larger business and can dedicate time to your business energy use, then you may be offered a flexible rate. This is where you are in control of both when you buy your energy and how much you buy. This means you can potentially take advantage of dips in the price of wholesale energy, but can also leave you at the mercy of market movements.
» COMPARE: Business electricity
How is my business energy bill calculated?
Your business energy bill isn’t just dictated by your usage and your unit rate. There are a number of other charges that go in your bill.
While you might not be in control of some of these costs, knowing what they are and how they affect you may help inform your decisions when your contract is up.
You won’t necessarily see all of the charges outlined below on your bill, but that doesn’t mean you won’t be paying them.
Unit rate
Your unit rate is the amount you pay per kilowatt hour for your business electricity or gas. If you are on a fixed tariff, this rate will be the same throughout your contract. If you are on a variable tariff, it will go up and down alongside wholesale energy prices.
Generally, the bigger your business, and the more energy you consume, the lower your unit rate will be.The bulk of your energy bill will be made up of your kilowatt hour usage multiplied by the unit rate.
Standing charge
You will also pay a daily standing charge for providing you with energy, whether you are using energy or not.
Every business electricity rate includes a standing charge, but the same is not true for business gas. Business gas tariffs without standing charges will often have higher unit rates, though.
VAT
The standard rate of VAT for business energy is 20%, but if you meet certain requirements you will be charged a reduced rate of 5%. To be eligible for a reduced rate:
- For business electricity, your usage needs to average less than 33kWh a day, or 1,000 kWh a month.
- For business gas, your usage needs to average less than 145 kWh a day, or 4,397 a month.
Climate Change Levy (CCL)
The Climate Change Levy (CCL) is charged on the kWh units you use. This was brought in by the government with the aim of promoting greater energy efficiency, and reducing gas emissions.
If you are eligible for the reduced 5% VAT rate, you will not pay the Climate Change Levy.
Network charges
The cost of using and maintaining the country’s gas and electricity networks will also be passed on to you by your supplier. These charges can vary over time and can increase your bill, and may include:
- Transmission Network Use of System (TNUoS)
- Balancing Services Use of System (BSUoS)
- Distribution Use of System (DUoS)
Whether these charges are listed separately on your bill is down to your supplier.
Metering costs
This is related to the cost of using and maintaining your gas and electricity meters, whether they are traditional or smart meters. Suppliers usually add this to your energy bill rather than being an upfront cost.
» MORE: Everything you need to know about smart meters for businesses
Other government policy costs and charges
Other government policy costs may be passed on to you by your supplier. These can include:
- Renewable Obligation Certificates (ROCs)
- Contracts for Difference (CfDs)
- Feed in Tariffs (FiTs)
- Capacity Market (CM)
Like the network costs, whether these are shown on your bill can depend on your supplier.
What else is on my business energy bill?
On top of the charges mentioned above, you will see other important details on your business energy bill, such as:
- Outstanding balance and pay-by date: This is the amount you need to pay, and when you need to pay it by.
- Usage in kWh: This is how much electricity or gas you have used in the stated time period, in kilowatt hours.
- Billing period: This is the period of time the bill is covering.
- Contract details, including end date: It is important to be aware of your contract end date, so you don’t get caught out and put on a more expensive rollover contract.
- Reading type: This will let you know whether your usage has been estimated, or is based on an accurate reading submitted by yourself or from a smart meter.
- MPAN/MPRN number: This is the unique identification number for your business premises. Your MPAN number covers electricity, while your MPRN number is for gas. You may need these to hand if you switch business energy suppliers.
» COMPARE: Business gas
What affects business energy prices?
The higher the demand for energy, the more wholesale energy prices will go up. Similarly, the lower the supply of wholesale gas and electricity, the more business energy will cost. Of course, this can also mean that if demand falls, or supply increases, prices may drop.
Supply and demand is affected by a number of factors, such as an unexpected cold weather snap that increases demand for energy, but also depletes the supply of energy sources, such as natural gas, in the long term. Or a drop in wind speeds may reduce the amount of renewable energy generated by wind turbines.
More wide-reaching problems around the globe may also end up altering the price of energy in the UK. For example, the Covid-19 pandemic caused demand for energy to fall, especially in the industrial sector, and this was reflected in lower business energy prices.
Russia’s conflict with Ukraine has affected how Europe’s gas supply is sourced, while oil prices are impacted by a range of factors, such as wars, sanctions and other international crises.
As much of the UK’s energy supply is imported, business energy prices are also at the mercy of currency fluctuations. Generally, the stronger the pound, the more euros or dollars it can buy and the cheaper your energy should be. If the pound weakens, however, energy prices might start to creep up.
» COMPARE: Business energy with NerdWallet
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