Understanding What Your Business Is Signing Up To
Business energy contracts work differently from household energy tariffs.
For a home, changing supplier can often be fairly simple.
However, a business may agree to buy energy for a set period. During that time, leaving the contract may be difficult or costly.
Therefore, before looking only at the price, understand the contract behind it.
A good business energy deal is not simply the lowest rate.
It is a contract that suits the way your business works.
Start With Your Current Contract
Before comparing new deals, find out what you already have.
Check:
- Your supplier
- Contract end date
- Unit rate
- Standing charge
- Notice period
- Any other charges
You should find much of this information on your bill or contract.
The contract end date is particularly important.
Make a note of it.
Then, give yourself time to look at your options before that date arrives.
Fixed Business Energy Contracts
Many businesses choose a fixed contract.
This usually means agreeing some energy prices for a set period.
For example:
12 months
24 months
36 months
A fixed contract can make costs easier to plan.
However, fixed does not always mean that every part of the bill is fixed.
Some taxes, network costs or other charges may still change, depending on how the contract is set up.
Therefore, check what the supplier actually means by fixed.
Why Fix the Price?
The main benefit is certainty.
Imagine your business uses a fairly steady amount of electricity each month.
A fixed contract makes it easier to plan your energy budget.
If wholesale energy prices rise, you may also be protected from some of that increase until the contract ends.
However, there is another side.
If market prices fall, you may remain on the higher price you agreed.
So, fixing a price is partly about managing risk.
You are choosing greater certainty rather than trying to predict the market.
Longer Is Not Always Better
Suppose you are offered:
1 year at 25p per kWh
or:
3 years at 27p per kWh
The one-year contract looks cheaper.
However, you do not know what prices will be when it ends.
The three-year contract costs more today. Yet it gives you more certainty.
Which is better?
That depends on the business.
A company with tight margins may value stable costs.
Another may prefer a shorter contract.
Therefore, contract length should be a business decision, not simply a guess about future energy prices.
What About Flexible Contracts?
Some businesses use flexible energy contracts.
Instead of buying all their energy at one fixed price, energy can be bought at different times.
This may give a business more control over when it buys.
However, it also brings more risk and more work.
Flexible buying is generally more relevant to larger energy users.
For many small businesses, a straightforward fixed contract is much easier to understand and manage.
The Unit Rate
The unit rate is the price you pay for the energy you use.
For electricity and gas, it is normally shown as:
pence per kilowatt-hour
or:
p/kWh
For example, imagine your electricity unit rate is:
25p per kWh
If you use:
1,000 kWh
the energy itself costs:
£250
However, that is not necessarily the whole bill.
There may also be standing charges, VAT and other costs.
Therefore:
Unit rate ≠ Total bill
That distinction is important when comparing contracts.
Do Not Ignore the Standing Charge
The standing charge is normally a daily charge.
You pay it even when very little energy is being used.
Imagine two offers.
Contract A
Unit rate: 24p per kWh
Standing charge: £1.50 per day
Contract B
Unit rate: 25p per kWh
Standing charge: 60p per day
Contract A has the cheaper unit rate.
However, it has a much higher standing charge.
For a business using large amounts of electricity, the cheaper unit rate may still win.
For a small business, the result could be different.
Therefore, compare the whole expected cost.
Your Energy Use Changes the Answer
This is why two businesses can look at the same contracts and make different choices.
Imagine a small office and a busy restaurant.
The restaurant uses much more electricity.
Therefore, a small difference in the unit rate can have a large effect on its annual bill.
The office uses much less.
So, the standing charge may make up a larger part of its total cost.
In other words:
The best contract depends on how your business uses energy.
Use Your Annual Energy Use
When comparing prices, find out roughly how much energy your business uses each year.
Your bills can help.
Then, you can make a simple estimate.
Suppose your business uses:
20,000 kWh a year
Contract A costs:
25p per kWh
The energy cost would be:
20,000 × £0.25 = £5,000
Now add the standing charge and any other costs that apply.
Do the same with the other offers.
This gives you a much better comparison than looking at the unit rate alone.
Watch the VAT
Business energy normally has VAT added.
The standard rate is usually 20%.
However, some businesses and organisations can qualify for the reduced 5% rate on some energy use.
For example, this can apply in certain cases where energy use is low or where the energy is used for qualifying charitable non-business purposes.
The rules can become more detailed where energy has mixed uses.
Therefore, if you think your business is paying the wrong VAT rate, check rather than assume the bill is correct.
We will look at VAT again when we examine the business energy bill.
What Is the Climate Change Levy?
You may also see Climate Change Levy, often shortened to:
CCL
This is a tax on energy supplied to many businesses and public bodies.
However, it does not apply in every situation.
For example, some low levels of energy use and certain other uses can be exempt.
So, if CCL appears on your bill, it is worth understanding why.
Again, we will cover this more closely on the next page.
What Is a Deemed Contract?
This is one of the most important terms for a business moving into new premises.
Imagine you take over a shop on Monday.
The lights work.
The heating works.
Electricity is already being supplied.
However, you have not agreed a contract with the existing supplier.
You may then be supplied under a deemed contract.
In simple terms:
You are using energy without having agreed a normal contract with that supplier.
Deemed rates can be more expensive than an agreed business contract.
Therefore, deal with the energy supply soon after moving in.
Moving Into Business Premises
When you take over a property, find out who supplies the energy.
Then, contact the supplier.
Also, take meter readings.
Ideally, take photographs showing the readings too.
This gives you a clear starting point.
You can then arrange the right contract or decide whether to move to another supplier.
Do not assume the landlord, previous tenant or supplier will automatically sort everything out.
Moving Out Is Just as Important
When leaving business premises, take final meter readings.
Keep photographs.
Then, tell your supplier when your responsibility for the property ends.
Otherwise, you could find yourself arguing later about energy used after you left.
A few minutes spent recording the meter can prevent a much bigger problem.
What Happens When Your Contract Ends?
Your contract does not simply become unimportant on its end date.
You need to know what happens next.
Depending on the contract and supplier, you may move onto different terms if you do not arrange another deal.
Those prices may be higher.
Therefore, start reviewing your options before the current contract ends.
This gives you time to compare rather than rushing into a decision.
Do Not Rely on a Renewal Call
Your supplier may contact you before the contract ends.
A broker may contact you too.
However, do not rely on someone else to remind you.
Keep your own record.
For example, put the contract end date in your business calendar.
Then add an earlier reminder to start checking the market.
That small habit can help prevent an expensive contract problem.
What About Energy Brokers?
Business energy brokers can help companies find contracts.
A good broker can save time and help you understand the market.
However, brokers are not all the same.
Some are paid by the energy supplier.
Their payment may be built into the price you pay for energy.
Therefore, ask:
How are you being paid?
How much will you receive?
Which suppliers are you comparing?
Is your fee included in my energy price?
Do not be afraid to ask.
You are the customer.
Be Careful With Pressure Selling
Business owners can receive frequent energy sales calls.
You may hear:
“Your contract expires today.”
or:
“This price is only available for the next hour.”
Do not allow pressure to replace checking.
First, confirm when your existing contract actually ends.
Then, check the offer.
If someone claims to represent your supplier, verify that too.
A genuine energy contract can affect your business for years.
Therefore, it deserves more than a rushed phone call.
Read Before You Agree
Business customers do not always have the same protections as household customers.
Therefore, take particular care before agreeing to a contract.
Check:
- Price
- Contract length
- Start date
- End date
- Standing charge
- Other charges
- Payment method
- Renewal terms
- What happens if you move
- What happens if the business closes
Also, check whether there are charges for leaving early.
If something is unclear, ask before agreeing.
Home-Based Businesses Are Different
Running a business from home does not automatically mean you need a business energy contract.
Someone working from a laptop at home may continue using normal household energy.
However, the position may be different if the property has significant business energy use.
For example, you might operate machinery or run a workshop from home.
Therefore, check with your supplier if you are unsure.
Do not move onto a business contract simply because someone tells you that every home business needs one.
Price Matters, but So Does the Contract
Imagine Supplier A is slightly cheaper.
However, its contract is three years long.
Supplier B costs a little more but offers a one-year contract.
Which should you choose?
There is no automatic answer.
You need to consider:
Price
Length
Risk
Flexibility
Your business plans
For example, a three-year contract may not suit a business that expects to move premises next year.
The cheapest contract can become expensive if it does not fit what the business is doing.
A Simple Contract Check
Before agreeing to a business energy deal, ask:
1. What is the unit rate?
How much will each kWh cost?
2. What is the standing charge?
How much will you pay each day?
3. How long is the contract?
Know the start and end dates.
4. What else can change?
Check whether all charges are fixed.
5. What happens at the end?
Know what happens if you do nothing.
6. What happens if you need to leave?
Check the contract terms.
7. Is a broker being paid?
If so, find out how.
Then ask one final question:
Does this contract actually suit my business?
In Short
Business energy prices can look complicated.
However, the basic idea is simple.
You are buying energy under a contract.
So, do not look only at the unit rate.
Check:
The unit price
The standing charge
The contract length
The other charges
The end date
Most importantly, give yourself time.
Do not wait until the contract is about to end before looking at your options.
A few pence difference in a unit rate may matter.
However, understanding the contract you are signing can matter even more.
Next, we will take an actual business energy bill apart and explain what all those charges mean.
Next: Understanding Your Business Energy Bill →
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