Businesses naturally use a lot of electricity and unless costs are kept under control, electricity bills can have a serious impact on business profits. To help your small business reduce its energy costs, we have compiled this useful guide to finding the cheapest business electricity tariffs, and how using a provider to compare business electricity can help keep costs under control.
The majority of electricity suppliers do not publish their full price list, however, they will publish their out-of-contract and deemed rates. These rates are the worst-case scenarios, which are offered to customers which have not arranged a standard electricity contract. It is possible to arrange much cheaper electricity by arranging a new electricity contract.
Deemed and out-of-contract rates explained
Deemed and out-of-contract rates are naturally much more expensive than standard tariffs. So, what are these rates and how can you avoid paying for them? Deemed rates are charged when you use electricity in your premises without an active contract in place. For example, if you have recently moved to new premises and have not arranged a contract, you are likely to be charged deemed rates. This is because the supplier has no knowledge of your usage habits, so will supply your property at the highest charge to reduce the risks to them. Until you sign a contract with the supplier at the property or switch to a new supplier, you will be charged these deemed rates. Out-of-contract rates are similar to deemed rates, as they are also charged outside of a contract. However, these rates apply when your existing electricity supply contract ends and a new one has not been arranged. Although, sometimes suppliers will switch users to out-of-contract rates if repeated bills are left unpaid. Whenever you use electricity outside of a contract, the supplier will continue to provide energy, however, it will always be at a much higher rate. The supplier will usually send a renewal letter before your current contract ends, so your business will have plenty of time to arrange a new contract. There are even some electricity suppliers which will agree to place businesses onto auto-renewal contracts, which prevents out-of-contract rates.
Fixed and variable rate electricity tariffs
When your business arranges a new electricity tariff, you will be able to choose from fixed and variable rate tariffs.
Fixed rate electricity tariffs
A fixed-rate tariff will fix the price you are charged per kWh of electricity for a set period of time. This is usually offered for between 1 and 3 years, although some suppliers offer 5-year fixed-rate contracts. Usually, the prices charged are higher than the lowest variable rates available, however, your business will know exactly how much it will be charged. This protects against potential electricity price rises, however, you will not benefit if prices fall. In some cases, fixed-rate contracts do not include pass-through costs and Transmission Use of System charges, which are otherwise known as DUoS and TUoS charges.
Variable rate electricity tariffs
If you are looking for the cheapest rates, variable rates are likely to be lower than fixed-rate contracts in the short term. If prices rise, you will have no protection and could end up paying more for your electricity. However, as you are not tied into a fixed rate contract, it is possible to switch to a new contract quickly. There is no single tariff which is the best option for businesses, as every business is able to tolerate different prices. If your business can't afford a sudden large increase in electricity rates, a predictable fixed-rate contract may be a more suitable option.
How do I find the cheapest electricity rates?
If you are being charged deemed rates, simply arranging a new contract could save you 50% per kWh. In general, fixed-rate electricity contracts will be 20-30% cheaper than deemed rate contracts, with variable rates often even cheaper. However, it is important to also compare standing charges, as these can have a significant impact on the overall charge. It is important to always compare the available options before arranging a new contract, to ensure you benefit from the cheapest tariffs available. Comparing prices is quick and it may be possible to lower your energy bills by as much as 60%.
Which is the cheapest electricity supplier?
There are more than 50 electricity suppliers in the UK, so it is easier than ever to find cheap electricity. There is no single supplier which offers the cheapest energy, as prices will depend on your individual business’s usage patterns and location. To find the best prices you will need to compare tariffs from a range of suppliers.
Energy prices across the UK
There are various Distribution Network Operator Companies across the UK, which operate in different regions. These form the distribution network of cables and towers which supply the electricity to premises. The suppliers do not own this network, instead, they sell your business electricity via this network. Some suppliers will base their prices on the various regions. For example, electricity in London may be cheaper than electricity in Northern Scotland. This means that a supplier which offers the cheapest supply in a certain region, may not offer the cheapest prices in another part of the UK.
Small and micro businesses
The majority of small UK based businesses are considered micro-businesses, which means it is often easier to switch electricity suppliers. Ofgem has put in place regulations which allow micro-businesses to terminate their contract at any time. In addition, suppliers must clearly state the end date and notice period on all electricity bills and statements.
Common questions about small business electricity?
Is domestic electricity cheaper than business electricity?
Domestic electricity tends to be capped, which means the maximum price suppliers can charge must not exceed a certain amount. However, businesses do not have these caps in place, so electricity can be more expensive. Although, large businesses which use vast amounts of energy will benefit from cheaper rates than small domestic homes.
Do I need a business electricity contract if I work from home?
If your business uses less than 40% of the electricity consumed in your home, you will not need a business electricity contract.
What is the VAT rate on business electricity?
Typically, businesses are charged 20% VAT on their electricity. However, there are some exceptions to this rule when it comes to businesses which are based at home, charities and not-for-profit businesses. These types of businesses are only charged 5%, rather than the full 20% VAT charge.
How much does electricity cost?
The answer will vary significantly between each business, however there is a simple calculation which can help you find your total annual cost. This is: Energy Used * the price per kWh + the daily standing charge = total annual electricity cost.