How is business energy different from domestic (home) energy?

Business environment

When you run your own business, whether it’s small or large, there are numerous things to consider, and one of those is the commercial energy that you use to make sure that all your operations run smoothly.

While the power your firm receives is exactly the same as that used in homes, business energy is a little more complex in terms of the cost and contract, so it’s important to be aware of the differences.

In our guide below, we explain the differences between business and domestic energy, the types of contracts that are available for companies, and how the pricing works and differs from domestic gas and electricity bills.

What is business energy and how does it work?

Quite simply, business energy refers to the gas and electricity used by companies across the UK. 

When your contract ends, you will be automatically placed on an out-of-contract rate, which will be much more expensive, so the best way for your business to avoid this and save money is to switch providers and get a better deal with someone else before your contract finishes. When you get informed about your ‘renewal window’, this is when you’ll be able to start looking for a new deal, which a broker can help you with.

Commercial energy works very similarly to domestic (home) energy, but there are several differences that all businesses need to be aware of.

How does it differ from domestic energy?

When your business purchases an energy deal or looks to switch providers to try and save money on utility bills, it really pays to be aware of the differences between commercial and domestic energy so you know what sort of things to look out for.

The following table shows the main ways in which business energy is different to household energy:

  Business energy differences

Explanation

  Gas and electricity rates are generally cheaper than home utility bills Business energy tends to be sold in bulk, as opposed to a monthly basis. Business energy suppliers purchase enough gas and electricity to last the contract length - while this means you’re likely to get cheaper rates, it makes things harder if you ever wanted to cancel the tariff early before the end date.
  Contracts generally run for a longer time Contrary to annual contracts purchased by households, business energy contracts can last as long as 5 years. Similar to domestic energy, there are both fixed and variable rate tariffs to choose from, but unlike domestic, you can’t shop around for another deal until your existing contract reaches the ‘renewal window’ - this is usually 1-6 months before it is due to end.
  Businesses do not get a cooling-off period Where domestic energy contracts offer a 14-day cooling-off period during which the customer has the right to change their mind and cancel without facing a fee, business energy contracts do not come with this, which is why it’s important to be 100% satisfied with the deal you choose.
  Single-fuel only energy deals Businesses must purchase separate gas and electricity contracts.
  Unable to compare and choose your own deal The business energy supplier will determine the needs of each individual business that wants to purchase a contract and each company will be offered a bespoke policy, making it really difficult when it comes to comparing quotes online yourself. Your best bet would be to get a business energy broker who’ll do all the work for you, helping to save any hassle.
  May be faced extra charges

Unlike regular domestic energy payers, companies will have to pay a VAT of 20% (or 5% for businesses that use less energy). Another charge for the Climate Change Levy may also be added - this is currently £0.47 per kWh for electric and £1.164 per kWh for gas.

Types of business energy contracts

Energy providers offer various types of contracts to business owners, so it’s crucial to be aware of each one so that you know exactly what contract you need to be on to prevent you paying too much for your business gas and electricity.

Here are the main types of business energy contracts available in the UK:

Type of business energy contract

Description

Fixed term You have a contract for a specific amount of time and you pre-agree the rates before committing to it. These won’t change throughout the contract, despite anything that happens in the energy market. You will, however, pay for your energy based on usage, so the price will vary accordingly each month. You will be charged per kWh at a set price.
Variable rate The rates may fluctuate during your contract as they will be affected by whatever is going on in the energy market.
Deemed rate If you don’t switch providers and just let your existing contract end, you’ll automatically be placed on an out-of-contract tariff - the provider’s more expensive rates.
28 days This is a rolling 28-day contract used by businesses who have not switched providers since the market faced deregulation. The rates can go up or down, so prices will fluctuate.
Rollover Similar to Deemed Rate contracts, if the business doesn’t switch before the current contract is due to end, they will be placed onto a rollover contract and face the provider's most expensive tariff. 
Flexible Usually for large businesses that may be able to get a flexible contract where it is split into months, quarters or seasons. These are generally for those who wish to reduce the risk of buying energy for years.

If you’re not sure whether you’re on the right contract for your business or you want to see if you can get a better deal than what you have now, we highly recommend getting in touch with a business energy broker.

Are business energy tariffs cheaper than domestic?

Generally, the price that companies pay for energy is cheaper than what households have to pay for their gas and electricity bills, despite the fact that prices for energy are always fluctuating. The main reason for this is that commercial energy is bought by suppliers at wholesale prices and usually in bulk.

How much does energy cost businesses?

According to MoneySuperMarket, here are the average prices paid per year depending on the size of the business:

Size of company

Price of Gas Per kWh (annual average)

Price of Electricity Per kWh (annual average)

Micro  £400 - £820  £900 - £2244
Small  £820 - £1458  £2367 - £3660
Medium  £1458 - £2239  £3774 - £7234

Source.

How are business energy prices calculated?

The energy provider will need to take the following factors into account when determining the price for your company’s energy usage:

  • Electricity and gas consumption per year
  • The size of the business
  • The type of business (sole trader, limited company, partnership, etc)
  • The company’s credit score - a lower rating will result in more expensive rates
  • The location of the business
  • The type of meter the business has
  • The type of energy contract

What is the VAT rate on business energy bills?

Most businesses typically pay 20% VAT on their gas and electricity, while some companies that use less than 33 kWh of electric or less than 145 kWh for gas may be able to pay a lower 5% VAT rate.

How to get the best price on energy for your business

It is much easier for domestic energy users to compare deals online and find the best one for their needs and budget, but businesses have much more to consider, which is why using a broker to find the right deal for your exact company is one of the best ways to get the cheapest price.

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