Home Money How to Save on Business Energy Bills: What You Need to Know

How to Save on Business Energy Bills: What You Need to Know

0 comment
Commercial energy contracts are complicated and expensive – our guide explains how to get the best deal

The products presented in this article are independently selected by This is Money’s specialized journalists. If you open an account using links that have an asterisk, This is Money will earn an affiliate commission. We do not allow this to affect our editorial independence.

Energy bills are one of the biggest problems for companies. They are expensive and often confusing, especially for those more accustomed to paying for their home’s energy.

Electricity and gas may come from the same place, but commercial energy contracts differ drastically from household bills. The most important thing is that companies do not have a limit on the price of energy.

In our essential guide to business energy, we explain how commercial contracts differ from national bills, how much you could expect to pay and how to compare business energy deals.

Commercial energy contracts are complicated and expensive – our guide explains how to get the best deal

There have been many bill changes since energy prices peaked in 2022.

Household bills dominated the headlines, but they were also something that hit small businesses hard. A plan was put in place to help them, but it ended and they now receive no support from the government.

It means it’s more important than ever to know how to control your business’s energy costs and compare prices to find the best deals.

Why is entrepreneurial energy different?

There are some essential differences between commercial and home energy, which largely have to do with how contracts work and how energy is bought and sold.

The main difference between commercial and domestic energy contracts is the rates and charges.

Many businesses use more energy than homes and tend to do so at different times of the day.

This is arguably similar to what happens in homes, which are more likely to use energy at peak times, such as before and after work. However, suppliers tend to know how the energy will typically be used: for heating, cooking, appliances and lights.

It means that suppliers can offer a standard rate and everyone pays the same rates per kWh used.

Businesses are different because depending on the type of activity or location, energy can be used in different ways and times of day.

Commercial contracts also tend to be much longer than the standard 12 months that residential fixed prices last, with businesses locked in for three or four years, so they can plan their finances in advance.

However, this carries greater risks for suppliers: if a company goes bankrupt two years into a three-year contract, they will have to recover costs or, due to changes in the energy market, they may end up out of money.

This means that suppliers do not offer standard rates, as is the case with homes, and each contract is tailored to each business.

Unlike households, businesses do not benefit from a discount if they get their gas and electricity from the same supplier.

Instead, companies have to sign separate contracts for gas and electricity, even if they are from the same supplier.

All of this makes switching business energy providers more complicated than for your home, which is why many small businesses opt for energy brokers.

However, there have been some problems with energy trading intermediaries and the way deals are made. This means that it is important to find a broker you can trust and ask them in detail about the deals they offer, the costs, and the commissions they earn.

Commercial contracts differ from household bills and are not subject to the energy price cap.

Commercial contracts differ from household bills and are not subject to the energy price cap.

Do companies get a price cap?

Energy regulator Ofgem originally introduced an energy price cap for households to protect those who did not switch, as higher costs disproportionately affected the elderly and the financially vulnerable. However, the price cap subsequently provided essential protection for most households when fixed rate deals dried up as energy prices soared.

Businesses did not receive the same maximum energy price protection or the benefit of former Prime Minister Liz Truss’ emergency energy price guarantee.

Following a backlash, the Government announced the Energy Bill Relief Scheme, which offered a discount on wholesale gas and electricity prices for all businesses.

When this came to an end in April 2023, it was replaced by the Energy Bill Discount Scheme, which offered a discount on gas and electricity based on rates paid to the supplier.

However, that plan came to an end in March 2024, eliminating all government support for struggling businesses. It means small businesses are once again at the mercy of volatile energy prices.

How much do companies pay for energy?

The cost of business energy depends on the negotiated contract, but businesses can get a guide to how much they can expect to pay for gas and electricity using the latest unit rates and standing charges.

Analysis by Bionic business energy specialist* Below is how much businesses, both large and small, could expect to pay annually based on average usage figures.

money" id="mol-40c02170-070c-11ef-87fb-13dc68e0883b">
Gas rates
Unit of measurement Permanent charge annual invoice
Home (energy price cap) 6.04p 31.43p £1,690 (dual fuel)
microenterprise 8.9p 33.9p £1,014 (single fuel)
Small business 8.5p 36.6p £2,046 (single fuel)
medium business 8.3p 79.2p £4,232 (single fuel)
Big company 8.4p 55.4p £5,663 (single fuel)
Source: Bionic
money" id="mol-add341c0-070c-11ef-87fb-13dc68e0883b">
Electricity rates
Unit of measurement Permanent charge annual invoice
Home (energy price cap) 24.5p 60.1p £1,690 (dual fuel)
microenterprise 26.6p 64.6p £2,896 (fuel only)
Small business 25.6p 83p £6,063 (single fuel)
medium business 26.1p 65.5p £12,637 (single fuel)
Big company 26.4p 68.5p £14,770 (single fuel)
Source: Bionic

Micro businesses are expected to pay £1,1014 a year for gas and £2,896 for electricity, while small businesses will pay £2,046 and £6,063 for gas and electricity respectively.

Medium-sized businesses should expect to pay £4,232 for gas and £12,637 for electricity, while large businesses will pay £5,663 for gas and £14,770 for electricity.

However, rates and bill size will depend on the location of your business and, obviously, your usage: some small businesses will simply need to keep the lights on, others will have factories.

You will need to consider standing charges (a fixed daily charge paid to the supplier regardless of usage) and other fees such as Climate Change Tax.

There is also a standard 20 per cent VAT charge on business energy, compared to 5 per cent on domestic energy, although there are some exceptions.

Should businesses fix their energy bills?

Businesses tend to lock in their costs for longer periods than households because suppliers buy wholesale electricity and gas well in advance.

Fixing your energy can help you budget and manage the flow of costs over the long term. However, there is always the risk that if you fix it, prices will drop and you will lose out on potential savings.

Research by the Federation of Small Businesses last year found that 13 percent of small businesses fixed their energy contracts during the market peak in 2022.

How can companies compare energy costs?

If you take care of your home’s energy bill, chances are that at some point you have entered your data on a price comparison website and chosen the best option.

The home energy switching market dried up as prices soared, but fixed-rate switching energy bills are making a comeback.

The change is not so simple for business energy, because contracts tend to adapt to the company. Providers use usage, business location and staff numbers to help calculate rates.

This means you would have to call all the gas and electricity suppliers to see what they have to offer.

That is why many companies turn to energy brokers to compare offers and advise them on the one that best suits their needs.

> See if Bionic can help you save money on business energy*

Some links in this article may be affiliate links. If you click on them, we may earn a small commission. That helps us fund This Is Money and keep it free to use. We do not write articles to promote products. We do not allow any commercial relationship to affect our editorial independence.

You may also like