Whether you’re running a high street shop or a micro-manufacturing plant, you’ll want to keep the lights of your small business on—and your electricity bills reasonable. Small businesses spend an average of £5,100 on electricity each year, but savvy shopping and switching can save you thousands and keep your accounts in the black. But as you know from running a business, it’s not just the price tag that matters: you also want to ensure your supplier is reliable and responsive to customer service queries and complaints.
The following guide can help you find the best electricity tariff for your small business, whether you’re just opening your doors, moving to a new premise, or at the end of your existing energy contract and contemplating renewal or a switch.
Understanding Business Electricity Tariffs
You’re certainly familiar with domestic energy tariffs—you have lights at home, right?—but these tariffs are unlikely to be suitable for your business, unless you work from home. There are a few key differences between domestic and commercial energy tariffs:The way you’re charged
With commercial tariffs, your quote, and bills will be made up of two components: the unit rate, in kilowatt hours (kWh), and the standing charge, the amount you pay to your supplier daily for maintaining your service and managing your account. The standing charge for electricity SMEs ranging from 15p to 160p a day, adding between £55 and £584 to your annual bill.
Longer contracts with less flexibility
While contracts for domestic electricity supply generally last for 12 months, business contracts can last for three or even five years. That means your business can lock in energy rates for years in advance, facilitating budgeting and long-term planning. However, with longer contracts comes less flexibility: there’s no cooling off period for commercial electricity tariffs, contracts often automatically renew, and switching generally requires 90 days notice.
When you can cancel and switch
However, you’re able to exit your business electricity tariff free of penalty if your business goes under or if you move to a new premise.
You’ll pay 20% VAT on a commercial electricity tariff, compared to the 5% you’ll usually pay for domestic energy contracts.
Types of Business Electricity Tariffs
There are a number of different types of commercial electricity tariffs and the one that best fits your business and premise will depend on your energy consumption, industry, size of your workforce and turnover, number or locations, and how important your business’ environmental impact is to you.
- fixed: The unit price you pay for electricity will remain constant for the length of the term. These are much like fixed rate domestic electricity tariffs, only the term lengths can be much longer.
- variable: With these tariffs, the amount you pay for your energy fluctuates over time. You may pay less initially but should be prepared to weather price increases, as wholesale energy prices or your supplier’s cost of providing energy increase.
- flexible: these contracts, which are designed for large businesses but can be acquired by smaller businesses with large energy needs, allow you to buy energy in wholesale chunks over the term of your contract, giving you more control over how much energy you buy and when.
- multiple site: These tariffs allow you to have one supplier, contract, and bill for multiple business locations.
- no standing charge: With normal contracts you pay a standing charge for your electricity service each day, whether you used an energy or not. If you run a seasonal business, such as a holiday resort, camp site, or Santa’s Grotto, you won’t want to be paying electrical bills during your off season. In that case, you might want to opt for a electricity tariff without a standing charge—although you’ll often pay a higher rate for each kWh in that case.
- green: If you’re concerned about your business’s carbon footprint, you might want to opt for a commercial electricity tariff from a green supplier like Ecotricity, which uses 100% renewable resources like wind and solar to generate electricity.
Benefits for Micro Businesses
If you’re a micro business—meaning you consume less than 100,000 kWh of electricity per year, , have fewer than 10 employees and/or an annual turnover of less than €2 million—you’re entitled to certain protections on the energy market by Ofgem. You can cancel your commercial electricity tariff with 30 days notice—rather than the typical 90—and when your supplier sends you your renewal notice, 60 days before the end of your contract, they must include details about your old rate, your new rate, and your annual consumption—enabling you to make an informed decision about whether you should stick with them or seek out a better deal for electricity elsewhere.