Business energy works differently from household energy. Contracts can be longer, prices are agreed in different ways and the rules depend partly on the size of your business.
Understanding the basics can help you control costs, avoid expensive contract mistakes and know what to check before agreeing a new deal.
What Is Business Energy?
Business energy is the gas and electricity used for business purposes.
A shop, office, warehouse, workshop or factory will normally have a business energy contract for its premises.
However, if you simply work from home, you will usually remain on a domestic energy contract rather than needing a separate business one.
How Is It Different?
Business and household energy may come through the same networks, but the contracts are different.
With business energy, you may agree prices for several years and have different terms for ending or changing the contract.
There is another important difference: business energy contracts are not covered by the household energy price cap.
So, understanding your contract is particularly important.
Gas and Electricity
Your business may use electricity, gas or both.
Electricity powers lighting, computers, machinery, refrigeration and many other types of equipment.
Gas is often used for heating, hot water and some business processes.
You may have both fuels with one supplier or use different suppliers for each.
Understanding kWh
Energy use is normally measured in kilowatt-hours (kWh).
Your bill uses this figure to show how much gas or electricity your business has used.
For example, equipment rated at 1 kilowatt running for one hour uses about 1 kWh of electricity.
Knowing your annual kWh use makes it much easier to compare contracts and track changes in your business.
What Makes Up the Cost?
Your business energy bill includes more than the cost of buying gas or electricity.
Depending on the contract, costs can include:
- the energy you use
- standing charges
- network costs
- government schemes and levies
- taxes
- metering costs
- supplier costs
- broker or sales costs
Some charges may be shown separately, while others can be included within the rates you pay.
This is why comparing only one figure can give a misleading picture of the real cost.
Unit Rates
The unit rate is the amount charged for each kWh of energy you use.
If your electricity rate is 25p per kWh and you use 100 kWh, the energy-use part of the bill would be £25 before other charges and taxes.
Your actual rate depends on your contract.
So, when comparing business energy, always check the unit rate alongside the other costs.
Standing Charges
A standing charge is a fixed amount charged for having an energy supply, whether you use much energy or not.
For businesses with high energy use, the unit rate may have the biggest effect on the bill. However, standing charges can matter more for smaller sites or premises that use little energy.
Look at both when comparing contracts.
Your Energy Contract
A business energy contract sets out how much you pay and the rules that apply to your supply.
Important details can include:
- unit rates
- standing charges
- start and end dates
- whether prices can change
- payment terms
- renewal arrangements
- fees or other charges
Do not rely only on the headline price. Read the contract terms before agreeing to a deal.
We explain this in more detail in Business Energy Contracts and Prices.
Fixed-Rate Contracts
A fixed-rate contract normally fixes the price you pay for each unit of energy for an agreed period.
However, fixed rate does not mean fixed bill.
If your business uses more energy, your bill can still rise. Also, check the contract because some charges may not be fixed in the same way.
The main benefit is greater certainty over the agreed rates.
Variable Contracts
With a variable contract, the price you pay can change.
This means your costs may fall when prices fall, but they can also rise.
Before agreeing to one, check how prices are set and when they can change.
Deemed Contracts
A deemed contract can apply when your business uses energy without first agreeing a contract with the supplier.
A common example is moving into new business premises and starting to use gas or electricity before arranging a deal.
These rates can be expensive, so find out who supplies the premises and arrange a suitable contract as soon as you can.
Moving Premises
When moving into business premises, take meter readings as soon as you become responsible for the property.
Next, find out who supplies the gas and electricity and contact them.
Do not assume that the previous occupier’s contract transfers to your business.
Then compare your options and arrange your own contract.
Know Your Energy Use
One of the most useful figures to know is your annual energy use in kWh.
You can normally find this on your bills or ask your supplier.
Also look at when the energy is being used. A business that uses most of its electricity during working hours may have very different needs from one operating around the clock.
Understanding your use gives you a much better starting point for controlling costs.
Your Meter
Your meter records the energy used at your premises.
Depending on your business and meter type, readings may be collected automatically or you may need to provide them.
Accurate readings help reduce estimated bills and make it easier to see whether your energy use is changing.
Some larger or higher-use electricity supplies are measured in much more detail.
Half-Hourly Electricity
Some business electricity meters record use every 30 minutes.
This provides a much clearer picture of when electricity is being used, not just how much is used overall.
For businesses with this data, it can help identify high-use periods, overnight waste and opportunities to move some activity to different times.
Supply Capacity
Some business electricity supplies have an agreed amount of capacity available from the network.
This is particularly important for businesses with larger electrical loads.
If your business needs more power because you are adding machinery, EV chargers, electric heating or other equipment, the existing supply may need to be checked.
We cover this separately in Supply, kVA and Maximum Demand.
Micro and Small Businesses
Some energy rules provide extra protection for smaller businesses.
Whether you qualify can depend on factors such as employee numbers, turnover and energy use.
This matters because certain rights around contracts, brokers and complaints may apply to micro or small businesses but not to larger organisations.
If you are unsure, check your status rather than assuming all businesses have the same protections.
Using an Energy Broker
A business can arrange an energy contract directly with a supplier or use a broker or other intermediary.
A broker may help gather and compare offers, but the service is not necessarily free.
Ask how the broker is paid, what suppliers it works with and what authority you are giving it.
Most importantly, understand the full contract before agreeing to it.
Before Agreeing a Contract
Do not judge a business energy deal on the unit rate alone.
First, check your annual use and current contract. Then compare the unit rate, standing charge and any other costs.
Also check:
- the contract length
- when it starts and ends
- whether prices can change
- what happens when it ends
- any broker fees or commission
- the rules for leaving or switching
A slightly lower headline rate may not be the better deal once everything else is included.
Reducing Energy Costs
Getting a better contract is only one way to reduce business energy costs.
The other is to use less energy.
Start by finding out where and when energy is being used. Then look for waste, such as heating empty rooms, leaving equipment running overnight or using inefficient lighting and machinery.
We cover this in Reducing Business Energy Costs.
Key Points
- Business energy contracts work differently from household contracts.
- Business energy is not covered by the household energy price cap.
- Know your annual gas and electricity use in kWh.
- Compare the whole contract, not just the unit rate.
- Check contract dates and what happens when the agreement ends.
- Avoid remaining on a deemed contract unnecessarily.
- Monitor energy use as well as energy prices.
Important Information
Energility provides general information to help you understand energy, household and business costs, services and ways to save money. It is not financial, legal, tax, technical or professional advice.
Prices, tariffs, grants, government schemes, regulations and other information can change. Costs, savings and calculator results are estimates and your actual results may be different.
Before making an important financial decision, signing a contract or carrying out significant work, check the latest information and consider getting advice from a suitably qualified professional where needed.
Energility may receive a commission or other benefit from some links or services. Where this applies, we aim to make it clear. This does not increase the price you pay unless stated otherwise.
Energility
Learn. Compare. Save.