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Understanding commercial gas pricing

When running a business, it is imperative to stay on top of budgeting and necessary expenses. Gas consumption can lead to unexpectedly high energy bills, but if you understand how energy suppliers price gas for commercial customers, this can be avoided. Staying on top of developments in the gas and energy market can help you save thousands of pounds.

In this guide we will break down how energy suppliers price your contract, how to find the best business gas deals, and what measures you can take to save more money.

In This Guide:

What is involved in a commercial energy contract?

If you are new to commercial energy contracts, it’s a good idea to get to grips with the terminology involved and understand how they differ from domestic energy contracts. Your gas and electricity are typically bundled together in your energy bills and delivered by the same supplier.

For commercial customers, these contracts are usually longer term, ranging anywhere between one to five years. Upon signing this contract, you will be locked into it for the duration of the contract without the option of easily switching to a different supplier.

Domestic customers have a much easier time cancelling and switching contracts because of government protections put in place. While neither domestic nor commercial customers should allow their contracts to roll over after the initial contract ends, it is especially vital for businesses to sign a new contract once they terminate their old one. This is because when businesses continue to use energy without a contract, they are placed on deemed contracts or pay out of contract consumption fees, which are often extremely high.

Roughly 10% of small businesses find themselves on deemed contracts, which mean these owners are paying about 80% more than they could be if they negotiated a contract with a major supplier.

How is gas priced?

Like all energy customers, commercial customers will pay for their gas per unit consumed. However, businesses will face additional tariffs based on monthly costs, how large the business is, how the business is billed (typically by paper or online), and how the energy is sourced. Most business choose fixed rate deals where the price remains stable for the duration of the contract, but some business opt for a variable tariff where the price fluctuates with the energy market.

Typically, businesses will pay a 20% VAT for energy, as well as the Climate Change Levy. However, if you are a charity or not-for-profit organisation, you are eligible for a 15% reduction in the VAT and are exempt from paying the Climate Change Levy, which significantly reduces your additional tariffs.

How can I save money on my gas bills?

Fortunately, there are several ways you and your business can save money on gas and electricity. Consider implementing some of the following:

  • Clean energy technology

Developments in clean, or green, energy technology are actually a great way for commercial energy customers to save money. Green energy refers to renewable resources, such as wind or sunlight, which businesses can use to supplement their main source of energy.

There are also advances in smart meters for businesses, which allow you to track your gas and electricity consumption and learn how and where to cut back on usage.

  • Compare energy suppliers

It is essential that businesses shop around the energy market and get at least three to five quotes. You can use our online energy comparison tool that allows commercial customers to compare multiple business energy deals at once. After you narrow down the energy suppliers, it is a good idea for businesses to contact them directly in order to get tailored contracts.

  • Always sign a new contract

Don’t assume that what you currently pay will remain the same if you allow your contract to roll over. It is imperative to cancel your contract at its end and either receive a new energy quote and contract from your current supplier or seek out a new energy supplier. When your contract rolls over, you could end up paying upwards of 70% to 100% more than you otherwise would be.