How is my business energy bill calculated?

·5-min read

If you run a business, there are a lot of expenses to take account of. But while you may be ace at negotiating with suppliers, it’s easy to forget about some of the basics such as energy costs for premises.

If you think that the price is what you have to pay, think again.

You really should be more hard-nosed about it as there are a range of energy deals out there for businesses customers.

Finding the right one can mean cutting the cost of bills, which is crucial, as spending money on heating and lighting your business can cut a large dent into your profits.

But it’s worth bearing in mind that the business energy market is not quite the same as domestic energy, gas and electricity for your home.

For starters contract terms tend to be longer, which makes it even more essential to get the right deal before you sign up.

How does business energy work?

The price you pay for energy for your business is normally cheaper per unit than that for your household. That’s because most business premises use a lot more energy than a home.

That makes you a bigger customer and effectively gives you more bargaining power to try and negotiate a cheaper unit price.

And that’s especially true if you have a number of different premises, which means you use more energy and have a greater bargaining power.

But, crucially, the total price you pay can be higher than for domestic use. That’s partly because the VAT rate is much higher for business energy at 20% compared to just 5% for domestic use.

Business customers also have the Climate Change Levy, which adds to the overall cost.

So it’s important to check all these different components before deciding whether the deal you’re offered is a good one.

It’s also worth bearing in mind that the contract you’re offered by a supplier is likely to be longer than with your domestic energy, so ensuring you get the right deal is even more crucial.

What affects the price?

You’ll get your own quote from a supplier which is aimed to meet your particular gas and electricity needs. It will be based on how much energy you’ll be estimated to use, the locations of your premises and the type of business you run.

The longer the contract you are prepared to agree to, the keener the prices should be but other financial considerations also come into play, such as your business’s credit score and how you propose to pay.

It will also depend on whether it’s a fixed or variable rate tariff, as with domestic energy use.

What type of tariff should I choose?

With a fixed tariff, you’ll agree to a rate for a set period, usually up to five years.

The rate will be based on the wholesale cost of the energy that the supplier paid which means if you sign a contract when wholesale prices are low, you could benefit for years to come.

By the same token, if wholesale prices are high when you want to fix a tariff, it could prove costly in the future.

But that doesn’t mean you should necessarily choose a variable tariff. Prices will go up and down during the term of your contract and the uncertainty of not knowing how much you will have to pay for energy in different months could well impact your cash flow.

It’s also worth bearing in mind that you won’t be able to get a discount for dual fuel as you can with domestic supply, which means you’ll need to negotiate gas and electricity tariffs separately, depending on your usage of each.

But you will be able to negotiate a lower rate if you have several premises and can get a multi-site contract. Having one tariff for all your different premises will also make controlling energy costs easier.

Meanwhile If you can find a supplier that offers a green tariff it will mean you shouldn’t be liable for the Climate Change Levy, which could be an instant money-saving move.

How can I cut my energy costs?

Encouraging workers to get into good habits can really help slash the cost of heating and lighting your premises. Think about how you save money on home energy costs – there are lots of techniques you can use in your business, such as switching off sockets not in use, turning off machines when workers have finished using them.

Energy-efficient lightbulbs can help reduce bills as can having motion-sensitive lights in some areas. The latter can mean no energy is being wasted when areas – such as halls or kitchens – are not being used.

Efficient air-conditioning and heating is also crucial in keeping a handle on energy costs.

For instance, turning the thermostat down by 1°C could cut energy bills by 8%, according to estimates from the Department of Energy and Climate Change. But your biggest saving could come from switching.

Switching to save

If you haven’t switched energy supplier for some time, you will almost certainly be able to save money by doing so. Start at a business energy comparison service.

If a contract has ended and you’ve been switched onto an out-of-contract rate , you’ll have been paying through the nose to heat and light your premises. It could be hundreds of pounds or more depending on how much energy you use, what existing deal you had and what new tariff you can negotiate.

Switching business energy contracts usually takes between four and six weeks. While that may seem a fair while, the process should be painless as it won’t require any new pipes or upheaval.

Instead a new supplier should work closely with your existing supplier to ensure no loss of power and simply inform you of the switching date. From then you’ll simply be able to start saving.

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