The BizSpace Guide to Business Energy

Energy for Small Businesses

According to the Office of Gas and Electricity Markets (OFGEM), 19% of small businesses have not switched their energy supplier in the last five years. As you’ll see in this guide, there are definite benefits to shopping around when it comes to business energy.

Of those small businesses that did change suppliers, 52% stated that they switched due to price increases on their previous contract when asked by OFGEM. If your business energy prices have increased recently, perhaps it’s time that you took a look at the market.

There are certain special considerations when it comes to energy for small businesses. For start-ups, it might be worth looking into contract-free energy suppliers to make sure that you’re not tied down during any turbulent periods. Slightly more established small businesses could benefit from looking into longer contracts with lower prices.

Factors Affecting Business Energy Prices

When it comes to business energy prices, there are loads of different factors that can have an effect. There are many issues relating to your business and your specific needs that will affect your business energy costs. To give you a complete picture of all of the stuff your supplier will think about when giving you a quote, we’ll take a good look at each factor in detail.

The Type and Size of Your Business

How many people currently work at your business? The rates you get on gas and electricity will vary between SMEs and larger firms. The nature of your business is also something suppliers will take a look at. Energy rates will be different for a regular business that works during the standard 9-to-5 hours and a manufacturer that operates overnight or for longer hours.

Essentially, the type and size of your business will both have an impact on one thing: your average energy consumption pattern. The general rule is that the more energy your business uses, the cheaper the rate you’ll be quoted.

It’s a little bit more complex than this, though. Your business size will also impact the type of meter you can have. If your business uses more than 100kW in any 30-minute period, then you’ll have to be on a half-hourly meter that provides your supplier with readings every 30 minutes. Unfortunately, these are more expensive than standard meters.

The Location of Your Business

Business energy prices vary throughout the UK. Areas like South Wales are pretty expensive in terms of energy tariffs, whilst locations in the Midlands are much cheaper.

What’s this all about? Regional variation in energy costs comes down to how much local energy distributors are charging suppliers, how much it costs to buy from the national grid in a given area, and ultimately how much suppliers have to charge to remain profitable.

In the UK, energy is distributed through local networks. The distribution of electricity happens through Distribution Network Operators (DNOs). Although prices are regulated by OFGEM, each of the 14 DNOs charges different rates to suppliers. 

You won’t be surprised to hear that gas is distributed through Gas Distribution Networks (GDNs). There are eight of these across the UK and, like DNOs, each of these has different prices for suppliers.

Your Number of Sites

How many sites does your business have? For each of these, there’ll be a separate gas and electricity meter. If you had a different contract for gas and electricity at each of your sites, you’d be constantly renewing with your suppliers.

Not only would this be time-consuming, but you could also end up on a much more expensive tariff if you fail to renew on time and your contract rolls over. As a result, having multiple sites on separate deals could end up costing you time and money. 

To make sure your business doesn’t get charged more than those with just one site, you can look into setting up a multi-site deal with your supplier. For starters, a multi-site contract will make it easier to renew. As you’ll essentially be buying a load of energy in bulk this way, a multi-site deal can also give you room to negotiate a better offer when your renewal comes around.

The Length and Type of Contract

Some suppliers may try to get you on a longer contract with them by offering you a cheaper rate, although this isn’t always the case. The length of your contract can affect your prices in a number of different ways.

Your standing charge will drop for every year that you extend your contract. Whilst this may sound great, your unit cost per annum will increase by an average of 6% each year. Check with your supplier to find out about how different contract lengths will affect your costs.

As a savvy business decision-maker, you’ll also want to think about the type of contract you go for. You can choose a fixed, pass-through, or flexible contract, but what do these mean for your costs?

• A fixed-rate contract means that the price you’re quoted at the start won’t change throughout your contract. This is great for your budgeting, but just make sure that all of your charges are included in this!
• Also known as partially fixed, a pass-through contract fixes your energy costs for the duration of your contract. As the name suggests, however, your supplier can pass through third-party charges to you. For example, if they incur extra distribution or transportation costs during your contract, your price may increase.
• Flexible contracts mean that you buy energy from your supplier at different times throughout your contract. Unlike fixed-rate contracts, the price will change during the contract period.

Business Energy Bills

When you look at your business energy bill, you’ll notice that there are tonnes of different charges that add up to your total cost. On top of charges relating to the distribution and supply of energy, you’ll find VAT. We’ll move on to cover costs that are directly related to the energy and service you receive below, but it’s worth explaining how VAT works for business energy first.

VAT on Business Energy

For business electricity and gas, the VAT rate is normally 20%. That said, there are some exceptions to this. Low-usage businesses can be charged a reduced rate for their energy: businesses that use less than 33 kWh of electricity or less than 145 kWh of gas each day are eligible for the reduced VAT rate of just 5%.

Wholesale Energy Costs

Wholesale energy costs simply reflect the amount your supplier has to pay for the energy it supplies you. These costs may change or may remain fixed if you’re on a fixed-rate contract.

Metering Costs

The meters that are used to measure your energy usage cost money to operate. Your supplier will charge you for the operation and maintenance costs of your meter(s). As you might remember from earlier, these costs will vary depending on whether you’re using a half-hourly or regular meter. If you don’t have a smart meter, then your supplier will charge you for the cost of coming out to do a reading.

Transmission Network Use of System Charges

Transmission Network Use of System (TNUoS) charges cover the National Grid’s installation and maintenance of the transmission network across the UK. TNUoS charges change over time and vary by region, as different parts of the UK have different levels of energy demand.

Distribution Use of System Charges

Distribution Use of System (DUoS) charges relate to the local distribution of energy around the UK. DUoS charges are basically the local version of TNUoS charges, covering the installation and maintenance costs of regional DNOs as opposed to the National Grid.

The Climate Change Levy

Introduced by the UK government in 2001, the Climate Change Levy (CCL) is designed to encourage businesses to become more energy-efficient and save the planet. For each unit of energy your business uses, you’ll be charged an additional fee due to the CCL. That said, there are exceptions to the CCL for businesses that use renewable energy.

Supplier Margins

Of course, business energy suppliers operate like any other business and need to make a profit at the end of the day. Rather than keeping customers in the dark on this, suppliers will let you know exactly how much profit they’re making out of your contract on your bill.

Switching Suppliers

Business energy can be really expensive. Most businesses who switch suppliers do so to try and lower their costs. There are other reasons to switch, too. Some companies switch energy suppliers to get access to renewable energy – going green with your business energy can be a great move from a corporate social responsibility point of view, as well as helping to combat climate change.

Before You Switch

The most important thing to do before you switch business energy suppliers is to pay off any outstanding bills with your previous supplier. Failing to do this could result in you facing some pretty nasty charges down the road. 

The next step is to find your last energy contract and a copy of your most recent bill. Your latest bill is important because it’ll have your meter numbers on it. To switch suppliers, you’ll need your Meter Point Administrative Number (MPAN) for electricity and Meter Point Reference Number (MPRN) for gas. 

Comparing Energy Suppliers

Armed with all of your essential information, you’re ready to move on to the research phase. This was once a much more difficult task, requiring a significant investment in time. Nowadays, comparing business energy suppliers is simple and can be done online.

There are tonnes of different sites who want to benefit from your business switching suppliers, many of which will be revealed by a simple Google search – you probably came across a few adverts for business energy price comparison sites on your way to this guide.

As you’ve got all of the details you need, you may as well get a quote from a range of different price comparison sites before weighing up your options. This can be done in minutes and could save you loads of money, so there’s really no excuse for not doing a bit of research!

Hopefully this guide to business energy has been informative and will help your business going forward. If you’re looking for new business premises – whether office space or workshops – get in touch with BizSpace to benefit from flexible renting options and competitive prices.