Understanding business energy tariffs

·5-min read
 (Pixabay)
(Pixabay)

Gas and electricity bills can be a significant cost for businesses, so it’s worthwhile making sure you’re not paying over the odds for your business energy.

To help you understand business energy tariffs and make an informed decision about the best ones for your business, here we take a look at how they differ from domestic energy tariffs, what types of tariffs are available to businesses in the UK, and how to switch tariffs at the end of a contract.

What are business energy tariffs?

A business energy tariff outlines how your energy supplier will charge you for your business’s gas or electricity. The prices and plans for business energy tariffs are different to domestic energy tariffs as households and businesses use energy in different ways.

Some of the key differences between business and domestic tariffs include:

  • Business energy contracts tend to be longer – they are, generally, between one and five years, and you may not be able to leave your contract early. If you can leave early, you may be charged an exit fee.

  • Average unit rates for business energy tariffs tend to be cheaper – these are measured in kilowatt-hours (kWh). This is because suppliers can buy the energy in bulk to last the contract duration, whereas domestic energy is bought monthly. Bigger businesses who use more energy tend to pay less. However, many businesses will pay 20% VAT on top of bills (compared to 5% with domestic energy), plus many businesses will also have to pay an environmental tax called the Climate Change Levy (CCL) too.

  • There are no dual fuel-tariffs – taking out a dual fuel deal may save you money when it comes to domestic energy bills, but you don’t have the same option with business energy. You could use the same supplier for both contracts if this is the best option, though, and may be able to negotiate a discount if so.

  • There usually won’t be a cooling off period – this is a period of time during which you can cancel a contract without charge. So, make sure you’re happy with what you sign up to.

What types of business energy tariff are available?

Getting a quote for a business energy tariff is different to a domestic one as quotes will be tailored to your business’s individual circumstances.

You should be able to choose between a fixed-rate tariff (also known as fixed term) or a variable-rate tariff when deciding which business energy contract to take out.

With fixed-rate tariffs, you agree to a set price per unit of energy for the full term of your contract. However, be aware that this doesn’t guarantee that you’ll pay the same amount every month for your energy – this will be dictated by how much energy you use.

Variable-rate contracts mean that the price you pay per unit of energy will change over your contract, depending on the prices in the wholesale energy market. This will make it harder to predict what you will pay out every month.

You’ll also usually need to pay a standing charge, which is a daily charge to cover the cost of supplying energy to your premises and keeping it connected.

Other terms and types of business energy tariffs you should be aware of include:

  • rollover rate or end-of-tariff rate – this is the rate you’ll be moved on to if you don’t switch or renegotiate your energy tariff at the end of a contract. This is usually a very expensive rate so is best avoided

  • time-of-use tariffs – energy suppliers usually pay less to obtain energy outside of peak hours. So, some energy companies pass this saving on by offering businesses different rates for units of energy at different times of the day, and even on different days of the week through time-of-use tariffs. If your business can be flexible and use most of its energy outside of peak hours, this could save you money. You’ll need to have a half-hourly meter or smart meter fitted to be on a time-of-use tariff

  • green energy tariffs – some business energy suppliers offer tariffs where some or all of the energy you use is matched by the amount that your energy company buys from renewable energy generators. Others may also support carbon reduction projects by offsetting carbon emissions

  • ‘deemed’ contracts – if you move into new premises and start to use gas or electricity without agreeing a contract with an energy company, you’ll be on a deemed contract. If your contract ends with your supplier – if it’s terminated or expires – and you are still supplied with energy, this is sometimes known as a deemed contract too. The rates on these contracts are extremely high so you should switch from them as soon as possible.

  • multi-site energy contracts – if your business has multiple sites, you may have a number of business energy contracts. A multi-site energy contract with one supplier could allow you to put all of these individual energy tariffs into one package. This will remove the hassle of having several contracts, all with different end dates.

How to switch your business energy tariff

When you’re coming up to the renewal window of your current contract, you should start to compare your business energy options. A good way to do this is to use our business energy comparison service so you can compare a number of tariffs side-by-side. Ideally, you should allow at least a month to check whether there are better deals for you available and to understand how other tariffs compare to the one you’re currently on.

Switching business energy tariffs can save you significant sums – as an example, our partner of choice, Love Energy Savings, has saved business customers, on average, £955 on each switch.

Once you’ve found a new tariff, you’ll need to confirm you’d like to go ahead and give your current supplier notice.

As you usually won’t get a cooling-off period with business energy tariffs, make sure you’re happy with the deal you have found before you commit.

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