A Guide to Business Energy Contracts
Unlike the range of specific tariffs seen in the domestic energy market, business gas and electricity deals are only offered in the form of bespoke contracts. The cost of these commercial energy contracts can vary significantly, so it can be hard to tell whether or not your business is getting a good deal.
The reason that business energy contracts can differ so much is because there are a number of factors that affect the price energy suppliers charge for providing you with gas or electricity.
These factors include:
- The status of your contract
- The size of your business
- Your business’s credit rating
- The location of your business
- The legal structure of your business
- The market your business operates in
- The consumption habits of your business.
As well as understanding the aspects that impact the rates your supplier charges, it can help to have an understanding of some of the key features that you’ll find on a gas or electricity contract. Equipped with this knowledge, you’ll be better placed to choose the best energy deal for your business’s needs.
There are a number of different charges that make up the overall cost of your energy bill. It’s useful to know what each of these are so you can identify opportunities to reduce your energy costs. Some of the main charges are as follows:
- Unit rate - this has the biggest impact on your bill, and is the price that you pay per unit of energy (kWh) that you use. Typically, a small business should expect to pay 10p-15p per unit for electricity and around 5p per unit for gas.
- Standing charge - this is a daily charge that you must pay regardless of your consumption habits. You should expect to pay around 25p per day in standing charge fees.
- VAT - This is usually charged at 20%, but a reduction of 15% is available for businesses who consume less than 145 kWh per day. Charities and non-profit organisation are also eligible for the discount.
- Climate Change Levy (CCL) - a government imposed charge designed to encourage businesses to reduce carbon emissions. A discount is available for those that sign a Climate Change Agreement (CCA).
There is no compulsory length for a business energy contract, though they are typically offered for anywhere between one and four years, depending on the size and consumption habits of your business.
Business energy customers are not free to switch suppliers in the middle of their contract like domestic consumers. Instead, they must wait until the end of their contract is approaching before arranging to switch to a new one.
When looking to switch energy contracts, a business must first wait until they are within their ‘renewal window’. This window opens six months prior to your current contract end date and closes on your notice period end date, which you'll find on your bill. Suppliers are obliged to send a letter to inform you when your contract is close to expiring, but it’s recommended that you make a note of this date for your own reference.
Failing to switch within your renewal window means it's likely you'll be automatically rolled onto your supplier's ‘out of contract’ rates when your existing contract ends. These are inflated rates which are imposed by a supplier when no formal contract has been agreed, and can often be up to 30% more expensive than average rates. In order to switch away from out of contract rates, you must provide 30 days’ notice to your current supplier and agree a deal elsewhere.
It may seem as if there is a lot to take into account when looking for a better value business energy contract, but it can be a simple process once you've compared quotes to find the deal that's best suited to your needs.
If you would like help deciding what’s right for your business, finding the best contract available to you - or help with the switch itself - you can use the services of a trusted broker. The FSB has named Make It Cheaper as its trusted broker to help ensure our members get the best possible deal on their energy.
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