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Helpful information that you may want or need to know.
Understanding business energy tariffs can be crucial for any business aiming to optimise its operational expenses. Energy costs can significantly impact your bottom line, making the choice of the right tariff more than just a necessity—it's a strategic decision.
This comprehensive guide will hopefully help you understand the important factors in business energy tariffs, including how to assess your energy needs accurately, and tips on choosing the most cost-effective solution for your business.
Whether you're looking to switch providers, reduce costs, or align your energy consumption with sustainability goals, understanding business energy tariffs is your first step towards smarter energy management, and we’re here to help you understand how to better reach your goals.
Business energy tariffs are specific pricing plans that are offered by energy suppliers for businesses of all sizes, be it small businesses, large corporations or industrial facilities.
They work the same as your standard residential tariffs in that you choose how much you’ll pay for energy (gas and electricity), only on a larger scale as it is specifically for businesses that require more energy usage.
It is important for businesses to choose the right tariff for themselves as it ultimately impacts the company’s operating costs. Choosing a tariff that is rather expensive compared to their usage could have significant impacts on their operating costs and be a detriment to the business as a whole.
Just like with residential tariffs, there are different types of energy tariffs to choose from. The most common kinds of tariffs are fixed term, variable rate and deemed rate, although you may also see other options available.
Fixed term
Often the most chosen option, fixed-term rates lock the price per unit of energy for a set period of time, typically one to three years.
This is the most commonly chosen option, the same as it is with residential energy tariffs, as it means you pay a set price which is locked in for the duration of the contract and is unaffected by price fluctuations in the energy market, which in turn provides budget stability.
There are downsides to this option though, mainly in that if wholesale energy prices were to fall you wouldn’t be able to capitalise as you are locked into that contract and price. You also won’t be able to switch to another provider until the end of your current contract - unless you want to pay exit fees.
Variable rate
Variable rate tariffs are for companies that are willing to play the market and don’t mind prices going up or down.
Prices under these tariffs can change based on market conditions. Wholesale market rates for energy are monitored and what you pay may differ depending on the wholesale prices at the time.
This option comes with the obvious risk that prices soar month to month, meaning you will keep paying these higher amounts. However, due to this being a flexible rate option, the benefit is that you can switch whenever you’d like, typically without an exit fee.
Deemed rate
Another example of a flexible rate is deemed rate contracts, which are used when you’ve moved business premises and haven’t yet sorted out a new contract for the property but are using energy. In that case, the supplier for that property will put you on this tariff.
Deemed rates tend to be much higher as they are flexible rates, so they really should only be used as a short-term option if at all. The only real positive to this tariff is that you can switch from the current supplier, and you can usually do so without giving them notice.
Out of contract
Out-of-contract tariffs are identical to deemed rate tariffs, only they are applied when you don’t arrange for a new contract to start when your current one expires.
Again, this is a flexible rate so you would likely end up paying more than a fixed rate, but you’re not tied into a long-term contract so you are free to switch anytime you want, whether that be to a fixed-rate tariff or switch suppliers.
Assessing your business energy needs accurately is essential for effectively managing costs and choosing the most appropriate energy tariff.
It's all about estimating how much you’ll need based on how much you’ve used in the past and your projections for the upcoming term, so you’d want to start by reviewing historical utility bills to identify monthly and seasonal usage trends, which can help highlight periods of increased consumption due to factors like heating or cooling needs.
Also, pay attention to peak usage times, such as specific hours of the day or particular days that consistently show higher energy use. This information is crucial for considering tariffs that offer cheaper rates during off-peak hours and managing consumption to avoid high charges.
If you’re looking at a flexible contract or simply want to keep on top of your energy use, consider investing in smart meters and energy monitors. These devices provide real-time, detailed data about your energy consumption.
For a more comprehensive analysis, energy management software can be utilised to interpret the data from the smart meters, offering detailed reports and visualisations that can help you make informed energy-saving decisions.
For even further help in making these decisions, professional energy audits can provide an expert assessment of your facility’s energy flows, identifying opportunities to reduce energy input without compromising output.
Obviously, there are big benefits to choosing the right tariff, with them mainly centring around positive money management.
Potential cost savings
The cost savings involved with choosing the right tariff are arguably the biggest benefit. By choosing a tariff that aligns well with your company's energy consumption patterns, you can minimize the cost per unit of energy.
Fixed-rate tariffs are the best way forward if looking for the most consistent cost savings. While you could save more by going for a flexible option, it is completely up to chance. With fixed-term, you know what you’re paying so you can better keep track.
Improved budget forecasting
Essentially continuing on to that last point, by choosing the right tariff for you and your business, you’ll be able to improve your budget forecasting by knowing what it is you’re paying for your energy.
With energy being such a big cost, you’ll want to be able to keep on top of how much it is costing.
This can apply to both fixed-rate and flexible-rate tariffs, although it is likely to be more accurate with fixed-rate since the rate per unit does not change over the duration of your contract.
As for flexible-rate tariffs, having a deep understanding of historical consumption patterns can aid in forecasting future expenditures. This helps businesses manage their finances better, reducing the risk of unexpected costs.
Enhanced financial stability
Energy costs can be a significant portion of a business's operational expenses, especially in energy-intensive industries.
By optimising these costs through careful tariff selection, businesses can improve their bottom line and free up resources for investment in other areas such as development, expansion, or innovation.
Additionally, knowing energy expenses in advance helps in managing cash flow more effectively, providing a buffer against months when other business costs might rise unexpectedly.
Strategic business benefits
It’s not just money-related benefits, though. You’ll want to choose the right tariff that aligns with your company’s philosophies and strategies, such as sustainability goals.
For businesses looking to enhance their corporate social responsibility, choosing a green energy tariff can reduce their environmental impact while still managing costs effectively.
This can help your company in a number of ways, like meeting regulatory requirements or industry standards, and/or improving the company’s image among consumers and stakeholders who value environmental sustainability.
Switching energy providers isn’t always straightforward depending on whether or not you are in a fixed or flexible contract. But should you be able to, you may find the benefits listed above could become available to you with another supplier or on another tariff.
That may not be the case every time, but it certainly is worth assessing if the tariff you are on and the supplier you are with is working out the best for your business.
There are more ideal times to switch than others, but again it depends on your current situation. The absolute best time to switch or begin looking into switching is during your notice period, so around one to two months before your contract expires, or after your current contract does expire.
Of course, in the case of the latter, you would be placed on an out-of-contract tariff which may make it more expensive, hence why we’d recommend looking into your options before the end of your contract so you can have something lined up for then.
But there are also factors out of your control that you could take advantage of, such as market conditions or regulatory changes. If you are on a flexible contract and are able to switch with relative ease or don’t mind paying the early exit fee on your current contract, you could react to a time when the rate per unit has dropped.
Switching as a whole can be fairly important for businesses, especially on the money-saving front. While fixed contracts are good for keeping how much you pay for the length of that contract, when it expires and it comes to renegotiating, the supplier may (or more likely will) look to hike their prices up.
Keeping contracts to lesser lengths and switching regularly is similar to being on a flexible tariff, only you only have to monitor and take action every year or two rather than month on month.
If you find that you could benefit from switching and going somewhere else, here are the steps you’ll want to take to do so:
Review your current/existing contract to understand the terms, particularly any early exit ones if there are any. Check to see when that contract ends and the notice period is to properly weigh up your options.
Analyse and understand your current energy consumption and try to predict what it could look like over the course of one to three years (in case you experience growth with your business that may require heavier energy usage).
Research the different energy providers and compare tariffs, contract terms and services. This is where the energy management tools or a professional energy auditor would come in handy, especially the latter as they may recommend offers for you, or at the least point you in the direction of what you should be looking for.
While not mandatory, it is always a good practice when switching to any provider, be it energy or anything else, to see what other customers think, particularly other businesses with business energy providers. You want to ensure you are getting a quality service, and there is no better way to find out than from other current or previous customers.
A quick one on this note is that you should also check to see if the provider has readily available customer service, as it could be crucial should you need support if issues arise.
Negotiating the terms of your energy tariff is not something you can do with domestic energy contracts, but you certainly can and should with business energy contracts.
You’ll need to have your numbers calculated as well as your current and projected needs figured out before contacting your chosen provider or providers if you’re deciding between a few and want to see who will offer the best by leveraging each against one another.
When negotiating, you can work out better terms for your contract, not just the prices you pay. Things like the length of the contract and cancellation policies can be negotiated, so be sure to work out everything you want beforehand.
Although, if you’re not one for haggling, you can hire the services of an energy broker to do it all for you. These brokers are typically experts in the field so can advise you on what is best, like if a long-term or short-term contract is most ideal.
They also typically have good relationships with some suppliers so can help get you more through their good charm, plus they have the time aspect on their side. You may not have as much time to put in the work to figure everything out and haggle with multiple suppliers to get the best deal, but an energy broker certainly does.
Once you have negotiated with providers and feel happy that you’re getting a good deal and everything you want out of the tariff, you can finalise the switch.
You shouldn’t have to do anything but sign the necessary paperwork and/or online forms. Your new provider will handle the technicals of the switch, including contacting your old supplier.
Once everything is set up and working, be sure to keep an eye on your bulls and the service provided to ensure you are getting what you agreed upon.
One thing to mention about switching that probably goes without saying, but you will not be able to switch providers if you are in debt to your current energy supplier.
These days, a lot of companies aim to be as green as possible, and the good news there on the energy front is that green/renewable energy options are out there and there are plenty to choose from.
Green/renewable energy tariffs are options provided by energy suppliers, who source their power from environmentally sustainable sources such as wind, solar and hydro.
Green energy tariffs are ever-increasingly popular with businesses and customers alike, with all seeking ways in which to reduce their environmental impact and support the growth of renewable energy industries.
What’s more, there are benefits and implications of choosing these sustainable energy solutions, including:
Environmental benefits
The primary advantage of opting for a green energy tariff is the positive impact on the environment. By choosing renewable sources, businesses help to reduce the reliance on fossil fuels, which are major contributors to carbon emissions and global warming.
Renewable energy sources produce little to no greenhouse gases or other pollutants, contributing to cleaner air and a healthier planet.
Economic advantages
While the initial cost may be higher than conventional energy sources, renewable energy can lead to long-term savings.
This is due to the increasing efficiency of renewable technology and the rising costs of carbon-based fuels driven by regulation and diminishing supplies.
Energy security
By diversifying the energy supply and reducing dependence on imported fuels, countries and businesses can protect themselves against fluctuations in fuel prices and supply chain disruptions.
Renewable energy sources are typically more resilient to such fluctuations because they are abundant and locally available.
Corporate social responsibility
As mentioned, many businesses are aligning their focus on the sustainability of the environment, which includes energy.
Businesses that commit to sustainable practices often see enhanced brand loyalty and reputation, as consumers and stakeholders increasingly support companies with strong environmental credentials.
This can also attract like-minded employees, partners, and investors, helping to build communities around shared values of sustainability and ethical responsibility.
There are mistakes that can be made that will lead to things like overpaying on your energy, with many being simple and common mistakes.
We spoke earlier about the importance of switching suppliers and tariffs often as sticking with one supplier could see prices rise.
On those lines, it is important to constantly check the market for current prices, especially if you are in a flexible contract or currently in your notice period with your current contract, and even for those on fixed contracts.
If you do find that you are busy with your day-to-day business running, you may not have time for this though. That’s where having a professional energy auditor would be vital, as they will help take care of this important factor in your business.
Don’t think just because it would be another expense they are not worth it. At the end of the day, they are looking to help save you as much money as possible on your energy and/or make sure you are getting the most out of your contract.
Most importantly though, they will stop you from missing contract renewal dates, as this is possibly the most important factor in not overpaying for your energy. If you don’t choose to have an energy expert on your side, be sure to make a note (or a few) so you don’t miss it.
The average business energy cost in the UK depends on the size of the business and energy usage.
Most recent numbers from Uswitch state that UK small businesses work out to around £6062 a year on electricity alone, while gas on average comes out to around £2000 a year.
During the height of the energy crisis, a lot of UK businesses were less willing to fix at the higher prices being offered by suppliers. But since 2022, business energy rates have fallen more than 60%, and with the rates expected to remain steady for the time being, businesses are turning back around and looking to secure fixed-rate contracts.
Business energy tariffs are calculated the same way as domestic energy tariffs – the number of kilowatt hours (kWh) of energy you use multiplied by the unit rate you pay on your tariff.
While not always the case, business energy tariffs are typically cheaper than domestic energy tariffs.
However, most businesses will pay VAT at a rate of 20% on business energy compared to the 5% rate paid by domestic customers.
A fixed-rate tariff will lock your agreed unit rate for the entire length of your contract, while a variable tariff will fluctuate with the market, going up or down regularly meaning you will pay either more or less each month.
There are positives and negatives to fixing your energy prices, with the main positive being you know how much you are spending each month for however long your contract lasts for, while the main negative is that you could miss out on lower rates should they come down during your contract.
You can switch your business energy supplier either at the end of your contract or during if you are happy to pay an exit fee.
You should compare the different suppliers with what you require before deciding on the one you want to go for, then when you’ve decided, contact them to negotiate your contract.
Once you have agreed on the contract, you can sign all the necessary forms and paperwork and then your new provider will handle the rest, including contacting your old provider.
Similarly, you can have an energy expert to sort that all out for you.
Absolutely. There are business energy tariffs available for all business sizes.
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