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Business Electricity

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What our Nerds say about business electricity

It’s safe to say that, regardless of what your business does, it probably wouldn’t run without electricity.

From lights and computers to the kettle in the kitchen, electricity powers most aspects of your business. And this includes energy-intensive equipment or tools, which may be related to your specific sector.

However, business electricity is treated differently by energy suppliers than domestic electricity, which can be confusing if you are not in the know.

Connor Campbell Lead Writer at NerdWallet

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*Love Energy Savings has saved customers on average £1,809 on each switch. This data was collected between 01.01.2022 and 18.08.2022. The average SME electricity bill is £2,400pa (consumption below 50,000kWh).

What is business electricity?

Technically, any electricity used towards your business would be classed as business electricity.

This is clear if your business has specific premises separate to your household. Any electricity used on those premises would fall under this category.

However, if you run your business from home, it may not be as obvious.

Most suppliers will require you to prove that around 50% or more of your electricity used is for business purposes at home before allowing you to switch to a business electricity contract. Different suppliers may have higher or lower thresholds.

Types of business electricity tariffs

There are two main tariff options when it comes to business electricity: fixed rate and variable rate.

Fixed rates

This is where your contract will state a fixed unit rate in kilowatts per hour for the length of your contract.

Flexible rate

Instead of a fixed unit rate, a flexible or variable tariff will see your rate rise and fall with market activity. This means your business would assume the risk of your unit rate rising, but also could benefit if it fell.

Fixed rate vs flexible rate

There are advantages and drawbacks to both fixed and flexible business energy tariffs. The main question is whether you are comfortable taking the risks associated with a flexible rate. While you could find yourself benefiting from falling energy prices, you could just as easily be left with no protection from rising wholesale costs.

Deemed rate

If you move into new business premises, you will be on what is called a ‘deemed’ contract. You will easily be able to switch suppliers as this contract doesn’t have an end date. Deemed rates tend to be among the more expensive business energy tariffs available.

Out-of-contract rate

If you don’t arrange a new tariff before the end of your contract, but have signalled you will not be renewing your current contract, you may be moved on to an out-of-contract tariff. If this happens, you will also be able to freely change suppliers, since your contract will no longer have an expiry date. You may, however, still need to give notice.

Rollover contract

If you do not renew or renegotiate your current contract, or fail to give your supplier notice that you will not be staying with them, you may be put on to a rollover contract. These are typically more expensive than a standard fixed or flexible tariff.

You should be aware that if you are a micro business, your rollover contract cannot last longer than 12 months.

How much electricity does a business use?

There will be huge variations in electricity usage between businesses, largely based on size and industry. An office, for example, has wildly different needs than a restaurant, and the same again when compared to a shop.

However, there is broad guidance for annual electricity usage in kilowatts per hour (kWh). As a benchmark, UK Power has the following figures:

  • Micro business: 5,000-15,000
  • Small business: 15,000-30,000
  • Medium business: 30,000-50,000

Average business electricity rates

Many factors can have an impact on daily wholesale electricity prices, and therefore your business electricity quote – from the weather or supply and demand issues to fluctuations in currency.

These same factors will also inform the maintenance and network charges that come as part of your electricity bill.

How much one kWh costs will depend on the size of your business when it comes to annual electricity usage. The table below can act as guidance for when comparing quotes.

Average business electricity prices per kWh (including CCL)

Business size Annual usage (kWh) Price per kWh
Micro business 5,000 - 15,000 25.27p
Small business 15,000 - 30,000 25p
Medium business 30,000 - 65,000 20.94p

Sources: Price per kWh based on BEIS Q3 2022 figures. Annual usage based on Business Energy and UK Power.

Which businesses use the most electricity?

According to the figures published by the Department for Business, Energy & Industrial Strategy (BEIS), this is how total electricity demand in the UK in 2021 was split by usage:

Purpose Percentage of total demand
Domestic 33%
Other industries 10%
Energy industry losses 8%
Shops 7%
Offices 6%
Other commercial 5%
Public admin 5%
Chemicals 4%
Engineering 4%
Used for generation 4%
Food, etc 3%
Paper, etc 3%
Other energy industry 2%
Transport 2%
Hotels 2%
Iron and steel 1%
Agriculture 1%

How does business electricity pricing work?

The primary factor determining the price of business electricity is how much it costs to buy energy on the wholesale market. Wholesale prices change frequently, and are informed by everything from global demand, to the weather, to geopolitical issues such as international conflicts.

Cost breakdown

There are a number of different charges that will appear on your business electricity bill, contributing to its overall cost. These may include, but are not limited to:

Unit rate

Your unit rate is the amount you pay per kilowatt hour of electricity. Typically, the more energy you are expected to use, the cheaper your unit rate will be. Your business location, and the length of your contract, can also have an impact on the cost of your rate.

Standing charge

Your standing charge is the daily rate you pay for energy to be supplied to your business, regardless of how much you use.

Climate Change Levy (CCL)

The Climate Change Levy is the government levy charged on the energy your business uses.

VAT

When it comes to business electricity, VAT is charged at 20% for most businesses, or 5% for those eligible for the reduced rate.

How much does business electricity cost?

The cost of your business electricity bill will depend on a range of factors, including:

  • which type of tariff you are on
  • the unit rate cost per kWh
  • the cost of your standing charge
  • your usage, itself informed by business size and industry

What is a good business electricity rate?

Due to the vast differences between industries, there is no one ‘good’ business electricity rate, but rather only what is ‘good’ for your specific business.

There are two main factors to consider when trying to work out if a business electricity rate is ‘good’ for you:

  • How does it compare to your current rate?
  • How does it compare to what is being offered by other business electricity providers?

Depending on the length of your business electricity contract, the second question might be more important than the first. This is because wholesale energy costs can change dramatically, even in the space of 12 months.

Why is business electricity so expensive?

While the reason behind the increase in business electricity prices is down to rising wholesale costs, there are numerous factors behind the surge in those wholesale costs.

This includes pent up demand released by the easing of Covid-19 restrictions, which followed greater energy usage during the cold winter of 2020/21. Most recently, the conflict in Ukraine has put further pressure on supplies, especially with Russia cutting shipments of the Nord Stream gas flow to Europe in July 2022 and explosions in September 2022, which have led to the its suspension until repairs can be carried out.

These events have had the effect of pushing electricity prices higher, as the wholesale cost of electricity is linked to the price of gas.

» MORE: UK energy crisis?

Is business electricity cheaper or more expensive than domestic energy?

Although the electricity may come from the same source, and maybe the same supplier, there are a number of differences between domestic and commercial electricity.

The most important differences are:

  • Business electricity tends to be cheaper per unit than domestic electricity.
  • Business electricity contracts are normally longer than for domestic households.
  • You cannot have a dual energy contract for business electricity and gas.
  • VAT is charged at 20% for most businesses, and at 5% for domestic households.
  • Broadly speaking, it is not possible to exit a business energy contract early.
  • Business electricity is subject to the Climate Change Levy (CCL).

How much is business electricity per kWh?

As with your overall bill, the price of business electricity per kilowatt hour can vary greatly from organisation to organisation.

According to the Department for Business, Energy & Industrial Strategy, this was the average cost of electricity in pence, per kWh, including the Climate Change Levy, for Q1 2022:

  • Micro business: 20.06p
  • Small business: 20.57p
  • Medium business: 18.06p
  • Large business: 18p
  • Very large business: 17.90p
  • Extra large business: 18.39p

Are business electricity prices going up?

Just as domestic energy prices are expected to rise this year, business electricity costs are likely to further increase in 2022.

Cornwall Insight, an energy management consultancy firm, has stated that it believes business energy costs could increase five-fold for companies that renegotiate their contracts in October.

Are business electricity prices capped?

Normally, business electricity prices are not capped in the same way that domestic electricity prices are limited by Ofgem.

However, due to the scale of the problem faced by businesses, on 21 September 2022, the Department for Business, Energy & Industrial Strategy announced plans to help cut non-domestic energy bills.

From 1 October 2022 to 31 March 2023, the government will implement a Supported Wholesale Price for non-domestic customers in Great Britain. This is expected to be £211 per megawatt hour (MWh) for electricity. A parallel scheme will be established in Northern Ireland.

The level of price reduction will depend on your contract type:

  • Fixed price contracts: if you are on a fixed price contract signed on or after 1 April 2022, including those signed from 1 October 2022, your per unit energy costs will be automatically reduced to the level of your Supported Wholesale Price.
  • Default, deemed or variable contracts: if you are on a default, deemed or variable contract, you will receive a discount on your per-unit energy costs. The maximum discount between wholesale prices and the Supported Wholesale Price will likely be £345 MWh for electricity, subject to wholesale market developments. Your contract type means that, while your bill will be reduced overall, it is still subject to price changes.
  • Flexible purchase contracts: since some of the largest customers are on flexible purchase contracts, the level of their reduction will be calculated by suppliers based on the terms of the contract, as well as the maximum discount of £405 per MWh for electricity and £345 per MWh for gas.

» MORE: What is the Energy Bill Relief Scheme?

What is the Energy Bills Discount Scheme?

When the Energy Bill Relief Scheme ends on 31 March 2022, it will be replaced by the Energy Bills Discount Scheme, which will run from 1 April 2023 to 31 March 2024.

Eligible businesses will have their per-unit cost automatically discounted if their wholesale price crosses the set price threshold, up to a maximum discount. In Great Britain and Northern Ireland, the maximum discount for electricity is £19.61 per MWh, with a price threshold of £302 per MWh.

For businesses that are ‘particularly vulnerable’ to higher energy prices, there is a greater level of support available. These businesses are classed as Energy and Trade Intensive Industries (ETII), and will need to apply for this higher level of support. For ETIIs, the maximum discount for gas is £89 per MWh, with a price threshold of £185 per MWh.

The full list of Energy and Trade Intensive Industries – including a selection of miners and manufacturers, as well as libraries and museums – can be found here.

How much would electricity cost for a small business?

Based on the Q1 2022 figures from the Department for Business, Energy & Industry Strategy, if a small business were to use 22,500 kWh in a year, they could be facing a bill of £4,628.25. This is before the standing charge and other fees are taken into consideration.

What about micro businesses?

When it comes to commercial electricity, you are classed as a micro business if you meet just one of the following criteria:

  • Your annual electricity usage is less than 100,000kWh.
  • You have fewer than 10 employees, and your yearly turnover is less than €2 million.

Due to this second criteria, most small businesses in the UK would actually fall under the micro business category.

It is important to work out whether you are classified as a micro business, as there are specific Ofgem rules in place to protect you when it comes to business energy contracts. These include:

  • 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 rollover.

What about charities and non-profit organisations?

Charities and non-profit organisations are one form of business that may be eligible for the reduced VAT rate of 5%.

As a charity or non-profit, you also won’t be required to pay the Climate Change Levy (CCL).

What is VAT on business electricity?

The standard rate of VAT on business electricity is 20%. However, certain businesses are eligible for a reduced VAT rate of 5%. These include:

  • charities and non-profit organisations
  • mixed use business premises, where 60% of the energy usage is for domestic purposes
  • businesses that use no more than 33 kWh a day (or 1000 kWh a month) of business electricity.

Can you claim the VAT back?

Most of the time, you won’t be able to claim VAT back on your business electricity, or gas, bills. However, you may be able to get a partial refund if you were paying 20% VAT while eligible for the reduced rate for your last four years’ worth of overpayments.

How to get cheaper business electricity rates

Compare and switch business electricity providers

One way to see if you can secure a cheaper business electricity rate is by thoroughly comparing suppliers when you are nearing the end of your contract.

To help make this a bit easier for you, you can compare business electricity prices in less than 60 seconds using our handy tool.

First, you need to enter the postcode of your business. Then you will be asked to supply your business name, the name of your current supplier, and your current electricity usage.

Click ‘See Results’, and you will be shown the quotes on offer to your business on a supplier-by-supplier basis. This includes how much money you could save by switching suppliers.

Although cheaper rates will be a high priority for every organisation, every business will want slightly different things from their electricity provider. When looking to switch business electricity supplier, you should also keep in mind:

  • the unit rate and standing charge you are quoted
  • whether you want a fixed or variable rate
  • whether the energy comes from renewable sources
  • the length of the proposed contract
  • the notice period of the contract
  • the cost of any additional charges, such as maintenance charges
  • if you are using an energy broker, the broker’s fees

Who currently supplies my business electricity?

You should be able to find the name of your business electricity supplier on your bill.

If you have just moved into a new business premises, you can try asking the landlord or previous tenant to find out who your supplier is.

If you still cannot find out who supplies your business electricity, you can use a service called the Energy Network Association search tool to find your provider.

Why should I switch providers?

Just like with your domestic energy, switching your business electricity supplier can potentially save your organisation money. And it is essentially a must if you have just moved into new business premises, as you will be put on an expensive deemed rate that you have had no say in selecting.

Beyond the cost of the contract, switching business electricity suppliers can also help make your business greener, depending on the tariff you choose.

How much could I save by switching?

How much money you could save by switching business electricity suppliers will, in part, be determined by:

  • the cost of your original tariff, versus the deals currently available
  • the size, and energy usage, of your business
  • the length of contract you choose to sign
  • what type of tariff you choose
  • what type of energy you buy, i.e. whether it is renewable or not

How to switch business electricity suppliers

To begin your application for business electricity, you will normally need to provide your business postcode, and energy usage for a certain period of time – over three or six months, or a year, for example.

Comparing the greatest number of suppliers possible will allow you to pick the best tariff for your business needs. And if you are using an energy broker – a third party that may be able to negotiate a better price for a fee – be sure to ask them which suppliers they represent.

If you are considering switching suppliers, regularly checking your electricity quotes and timing the change correctly will help you maximise the amount of money you can save.

For example, when comparing electricity quotes, a major factor to consider is the daily wholesale price of electricity. This is what business electricity tariffs are based on, and it frequently changes.

When can I switch business electricity?

You likely won’t be able to switch your supplier until the end of your contract. Once you have reached the end of your contract, you may also need to give your supplier notice. It is important to check your notice period ahead of time.

The exception is if you are on a deemed or out of contract rate. Then you are free to switch business electricity suppliers at any time. However, you should still check if you need to give notice.

What if I’m tied to an existing contract?

You will only be able to switch business electricity suppliers at the end of your existing contract. You will also likely need to let your existing provider know you intend to switch during the specified notice period.

What information do I need to switch suppliers?

When applying to switch electricity suppliers, 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

It can take around three weeks for your switch to be completed, but may take longer if there are any complications. You won’t suffer any disruption to your energy supply during this period.

Should I tell my current business electricity supplier that I’m switching?

You will need to inform your current business electricity supplier that you are intending to switch provider within the notice period stipulated by your existing contract.

Will my business electricity supply be disrupted during the switch?

Your business electricity supply will not be disrupted during the switching process. So don’t let this worry stop you from seeking out the best business electricity deal for your organisation.

Can I switch if I have more than one electricity meter in my premises?

You can still switch business electricity suppliers if you have more than one meter at your premises.

What should I do with my electricity supply if I’m moving premises?

When you are moving business premises, you will need to take the following steps:

  • Notify your current energy supplier before you move.
  • Take a meter reading on the day you move out of your current premises, and send it to your current supplier.
  • Find out and contact the energy supplier at your new premises and supply them with the latest meter readings.

When you move premises you will automatically be put on a deemed contract. This means you are free to switch contracts to a potentially better tariff, as there is no fixed end date to the contract.

It is advisable to do so, as deemed contracts are among the most expensive tariffs around.

Can I get a business feed-in tariff if I have solar panels?

While the feed-in tariff (the original scheme designed to pay you for the electricity you produce) is no longer available, if your business uses commercial solar panels, you can still sell the excess electricity you generate back in Great Britain to the National Grid through the Smart Export Guarantee (SEG) scheme.

Unfortunately, the Smart Export Guarantee scheme does not operate in Northern Ireland.

Tips to reduce your electricity bill

There are a few changes you could make to your business in order to reduce your electricity bill.

Become more energy efficient

One way to save money on electricity is to make your business more energy efficient. To help you do this, you could conduct a business energy audit.

The result of this audit could include turning off appliances when they are not in use, getting your employees on board to implement the changes you have identified, and checking your lighting to make sure it is energy-efficient.

Use a smart meter

Smart meters for businesses and domestic households automatically submit your energy readings for you. This not only saves you the time taken to manually submit a reading, but can also help ensure that your bills are more accurate, potentially saving your money in the long run.

Does my business need a half hourly meter?

It will only be possible to switch to a half hourly meter if your business has a maximum demand of 70 kilowatts or more in any half-hour period.

If your business has a demand for 100 kilowatts or more in any half-hour period, then it is a legal requirement to use a half-hourly meter.

Use energy from renewable sources

One way to reduce your business electricity bill is to generate your own energy using renewable sources, for example through commercial solar panels.

What is green electricity?

Many business electricity suppliers offer renewable or green tariffs. To check exactly how their energy is being generated, you can look at the supplier’s fuel mix. This is the percentage make-up of how their energy is generated and, due to the Electricity (Fuel Mix Disclosure) Regulations 2005, should be found somewhere on the supplier’s website.

Compare quotes before your contract ends

Switching business electricity suppliers at the end of your contract is one way to potentially save money, as long as the new supplier is offering lower unit rates and standing charges.

» MORE: 11 tips to save money on business energy

Business Electricity FAQs

How much does business electricity cost?

Your business electricity bill will vary based on your tariff and usage. For the first quarter of 2022, the Department for Business, Energy & Industrial Strategy published that the average price in pence per kilowatt hour (including the Climate Change Levy) was:

  • Micro business: 22.43p
  • Small business: 21.04p
  • Medium business: 18.47p
  • Large business: 17.35p

At these rates, if you were a small business using 22,500 kWh a year, you could potentially expect to pay £4,734. That number includes the CCL, but excludes other fees, such as the standing charge, that will comprise the rest of your bill.

How to get cheaper business electricity rates

If you are coming to the end of your contract, your business is moving premises, or you are on a deemed or default rate, one way to get a cheaper business electricity rate is by comparing providers, and then switching suppliers to a better deal if available.

NerdWallet can help you find a new contract in seconds through its energy tariff comparison tool.

» COMPARE: Business electricity

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