Small businesses consume between 15,000 and 30,000 kilowatt hours of electricity a year, spending £5,000 on average, including VAT. 16% of their operating costs go toward keeping the lights on. And the computers and copiers running.
Businesses can obtain lower per-unit rates for electricity than domestic customers, and energy-intensive businesses can find the cheapest electricity prices on the market. But businesses also face other charges for their electricity use, including the Climate Change Levy (CCL). Therefore, it is essential businesses both shop around to find the best energy deals and increase efficiency to minimise their electricity consumption.
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When you compare energy for your small business your quoted prices will include two components:
Small businesses pay, on average, £5,000 a year for mains electricity, including the 20% VAT levied on commercial energy consumption.
Larger businesses find cheaper rates for electricity, both because their large energy budgets earn them bulk discounts and because they’re more on top of their energy contracts, often using energy brokers to find them the cheapest gas and electricity.
In general, microbusinesses (those with fewer than 10 employees and which consume less than 100,000kWh of electricity a year) are charged electricity prices that are 35% higher than those paid by large firms.
The vast majority (92%) of small businesses have arranged a fixed term contract for their electricity. Two-thirds of these contracts last one (31%) or two (34%) years.
Fixed term deals are the cheapest way to buy electricity and allow businesses to lock in rates for years, facilitating long-term budgeting and protecting your bottom line from fluctuations in the wholesale market.
If your business fails to negotiate a new fixed term electricity contract when yours lapses (and doesn’t auto-renew, as they often do) or if you move into a new business premises and don’t seek out your own contract, you’ll end up on a default or deemed contract, paying high per-unit rates for electricity. Typically, electricity prices on fixed rate deals are 20 to 30% less than out of contract pricing on default and deemed tariffs.
Microbusinesses are hit even harder. According to Ofgem, more than a quarter (27%) of microbusinesses were on these expensive default or deemed contracts for electricity in the first quarter of 2018. They paid 70% more for each unit of electricity they consumed on these contracts compared to microbusinesses which had negotiated contracts. It’s crucial your business, no matter how small, seeks out a bespoke, fixed rate contract for its electricity. Failing to do so can add thousands of pounds to your utility costs.