Many businesses are restructuring their operations globally due to the impact of the COVID-19 pandemic during 2020 and 2021. Business electricity rates and contracts should be audited to ensure that they are still getting the best value for their money.
Understanding how you’re currently paying for your business electricity is the first step to finding ways to save on overheads. In tough economic circumstances, new business owners may be wondering whether business electricity is cheaper than domestic electricity.
If it’s been a while since you last checked your business electricity contracts – you may be able to find significant savings by switching your plan.
How much are business electricity rates?
Business electricity should be cheaper than domestic energy, but that may not always be the case.
Unlike domestic electricity, businesses are tied to energy contracts, and while your energy contract may have made sense when you first signed up to it, it may not be your best option now.
While you may not cancel an energy deal during the term of your contract unless your business goes bankrupt or moves premises, many businesses are currently signed on evergreen or rollover contracts, which renew month-to-month once the duration of the contract has run up.
What happens when my contract expires?
Often, the rollover contract that your business has been placed on is a more expensive tariff. This could mean that your business is significantly overpaying on electricity right now. Many of the rollover contract options automatically billed after the duration of your energy contract will not be the best option for your business.
There is no difference in the gas and electricity that powers your home to that of your business – but how suppliers treat the supply of gas and electricity differs between domestic users and business users.
Understanding how your business uses electricity, as well as the different options made available by suppliers, will help you determine whether you should be switching to a different energy plan.
We’ll help identify areas in which your business can identify which contract will work best for your individual needs, as well as highlight how you could make the most of the potential savings that business energy contracts can offer.
How much do businesses pay for electricity?
According to BEIS, this is how much non-domestic consumers spent on electricity during 2020 (including the Climate Change Levy):
- Very Small: 17.16 pence per kWh
- Small: 15.43 pence per kWh
- Small/Medium: 14.33 pence per kWh
- Medium: 13.22 pence per kWh
- Large: 12.92 pence per kWh
- Very Large: 11.82 pence per kWh
- Extra Large: 11.77 pence per kWh
- Average: 13.48 pence per kWh
Is it cheaper than domestic energy?
In contrast, the average UK household paid £886 for 5100 kWh during 2020, or 17.37 pence per kWh.
It is clear that savings can be had for businesses that understand their energy needs, but finding out the best plan requires an understanding of the variables that come into play under different energy contracts.
How do business electricity contracts differ?
Businesses have the option of purchasing their electricity through fixed or flexible tariffs.
Flexible tariffs will fluctuate at various points throughout the duration of your contract, subject to the energy market, while fixed tariffs apply the same rate throughout the contract period.
There are advantages to both approaches, but which one will work best for your business may depend on a number of different factors.
Fixed energy tariffs will work best for businesses that want predictable energy costs, and that need to be able to budget for their overheads ahead of time. If your energy usage is consistent – a fixed energy tariff will ensure that your energy bills hover around the same cost every month.
A flexible tariff will ensure that businesses can take advantage in months where energy prices are lower, but are more susceptible to fluctuations in energy prices – and your bill could vary from month to month. There is an inherent risk in flexible energy tariffs, but you could end up with significant savings depending on your willingness to take the risk.
Remember, businesses generally use considerably more energy than the average household – so being smart about your energy provider can save your business hundreds or even thousands of pounds per annum.
What about time-of-use tariffs?
Time-of-use tariffs, such as Economy 7 tariff plans – mean that you pay an off-peak rate during certain hours, and a more expensive tariff during the rest of the day.
Businesses that operate outside of traditional working hours, or have the capacity to automate energy-intensive tasks to take place during off-peak hours, can save considerably on their electricity bills by opting for a tariff plan that allows them to take advantage of their operating hours.
The downside to time-of-use tariffs is that any operations taking place during peak hours will carry a heavy cost, and leaving on appliances or machinery could result in your savings being diminished.
It is important that you fully understand your energy usage before opting-in for a time-of-use tariff – so that you don’t get caught out by unexpected charges.
Installing a smart meter will give you full oversight of your business energy usage, and help make the process of deciding whether to switch to a time-of-use tariff easier.
What else contributes to the price of my business electricity price?
Many factors will determine the price that you pay for electricity.
- Geographical location: cheaper energy tariffs are usually found in major cities due to economies of scale and transport costs.
- Type of business: any business that can run outside of peak hours is likely to be offered a lower price for their electricity from suppliers.
- Credit rating: the better your credit rating, the more likely a supplier will offer you cheaper tariffs.
- Business size and consumption: the more energy that your business uses, the more likely you are going to be able to negotiate for a rate that suits you.
- Contract length: while not always the case, the longer the duration of your contract – the cheaper your electricity ends up being.
How can I find the right supplier for my business?
In a competitive energy industry, finding the right supplier may seem like a daunting task. Some factors for you to consider before signing up for a new energy contract include whether you’re looking to bundle your electricity and gas tariffs for the sake of convenience, or whether your corporate social investment structures are calling upon you to look to renewable energy sources to improve your carbon footprint.
Ultimately, in a competitive space such as this – there is always a better deal lurking around the corner. The trick is to understand how your business uses electricity, and how to make the most of your energy contract to maximise savings.
Sometimes, finding a partner with industry expertise is the best course of action.
Find an expert partner
Finding an independent consultancy firm with no bias to any particular supplier is your best way to save money on energy contracts. At Smarter Business, our team of experts will help you find energy deals that cater to your specific circumstances, and help you save money in the long run.
We’ll also help you understand how you’re currently using your electricity, and identify areas where energy is not being used efficiently.
We have helped hundreds of businesses take their first steps towards net zero carbon goals – and provided insight into how technology can revolutionise workflows.
More than just an energy brokerage, at Smarter Business we’re looking to a sustainable future for business across the United Kingdom.
Get in touch with us to find out more about how our business can save you money.
FREQUENTLY ASKED QUESTIONS
Are business electricity rates cheaper than domestic?
This simple question has a complicated answer. There are a number of factors to take into account – but generally, businesses will pay less for electricity than domestic consumers.
Unit prices are generally more expensive for domestic users, but they are not subject to price fluctuations, stringent pricing criteria, or 20% VAT charges.
Businesses are subject to levies, energy regulations and longer term contracts, and more information is required for a quote.
That being said, businesses that do their research will invariably pay less for electricity than home-owners.
What is a good price for business electricity per kWh in the UK?
The price that your business pays for electricity will depend on how much you use. Simply put, the economies of scale imply that businesses that use more electricity than the average will pay less than those that do not.
In 2020, extra-large businesses spent over 5 pence less per kWh than very small businesses.
Small business should look to pay below 17 pence per kWh, while extra-large businesses can find deals as low as 11.77 pence per kWh.
How do I change my business energy supplier?
You can be placed into a new contract 120 days before the end of your current one.
Check your latest bill to see your contract end date and ensure that you are nearing the end of your current business energy contract.
We’ll do the hard work, finding the best rates by comparing quotes among 27 trusted suppliers, so that you get the best prices. Once we’ve found the best supplier for you – we’ll confirm the switch with your current and new energy supplier so that your service is uninterrupted.