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Last updated: 05/06/2024 | Estimated Reading Time: 3 minutes

Understanding commercial electricity pricing

Owning or managing a business requires a lot of financial planning and budgeting, sometimes years in advance. One of the most important decisions you will face is how to organize your energy consumption and bills. A misstep here could lead to overpaying for electricity and missing out on the money saving opportunities available to businesses.

This guide will explain how electricity is priced for businesses and commercial customers. We will break down charges, areas where you can save money, and the most commonly used terminology.

In This Guide:

Commercial vs. domestic electricity: What is the difference?

The main difference between commercial and domestic electricity is how the energy is purchased by the suppliers. The suppliers will purchase all the energy needed for all of their domestic customers in advance. In contrast, commercial customers will sign a contract that is typically much longer in length, typically ranging between one and five years, and the supplier will purchase all the energy required for the entire span of the contract.

What factors are involved in pricing electricity?

Because commercial customers essentially buy their electricity ahead of time, they are usually on a fixed contract, paying the same amount per unit of energy for the entire duration of the contract. When compared to the average household, commercial energy customers almost certainly pay less per unit of energy.

You will also find that energy suppliers work to tailor your contract to your business’s specific needs, which can lead to significant savings and the ability to budget more easily for the years ahead. This can make the energy market more difficult for business owners to manoeuvre because each supplier will have to give you a customised quote, whereas private households can use online energy comparison websites, like Money Expert.

However, businesses do have to pay a 20% VAT on their energy consumption, along with the Climate Change Levy.

Before you sign a contract, you should be aware that as a business you will not have a cooling off period on your deal. Domestic customers are guaranteed a cooling off period to give them the opportunity to cancel their contract if they become unhappy with their supplier or the price of their contract.

A business contract does not include this because the government trusts your due diligence, expecting you to fully understand the business agreement before you enter into it. Thus, if you sign a contract with an energy supplier, you will be locked into that contract for its full length or face incredibly steep early exit fees.

How can I save money on my energy bills?

If you are getting ready to sign a commercial energy contract or your current contract is coming to an end, here are a few things you can do to ensure you get a cheap business energy deal.

  • Keep away from rollover contracts

You should begin looking at new contracts at least a few months before the end of your current one. Automatic renewal offers can potentially lead you to pay upwards of 70%-100% more than you do now. This means you need to officially end your contract with the supplier before the contracted date.

  • Get at least three quotes

In order to find the best business electricity deals, you need to shop around the energy market. While our online energy comparison tool can be very useful, it often helps for businesses to go directly to suppliers for customised business energy quotes.

  • Sign a new contract

A new contract, either with your current supplier or a new supplier, will ensure that you get a better deal than you would with a rollover contract. You must sign a new contract before your current one ends. If you fail to do so, you will have to pay out of contract rates, which are extremely high and can lead to unexpected financial expenses.

  • Look for clean energy options

As government regulators increase efforts to improve clean energy use, business owners can often find excellent financial incentives to install new energy efficient technology. Implementing energy efficient products could end up saving your business up to 20% on your energy bills.