Electricity Prices for Small Businesses

How much should you be paying for your business electricity?

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.

How much do small businesses pay for electricity?

When you compare energy for your small business your quoted prices will include two components:

• the per unit rate: the price you pay per kilowatt hour (kWh) of electricity you consume. Per unit rates for electricity for micro businesses and small businesses are, on average, 14p/kWh.
• the standing charge: the flat fee, levied daily, that covers the cost of delivering electricity to your business premises and the management of your account. You’re charged this whether your business uses any electricity that day or not. Standing charges for business electricity accounts range from 15p to £1.60 a day, or £55 to £584 a year. You can obtain business energy contracts without a standing charge, but you’ll pay a higher per-unit rate for electricity in return, so this only makes sense for seasonal businesses or others with very low consumption.

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.

What contracts are available for business electricity?

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.

How can you reduce your small business electricity prices?

• compare energy and switch: Although rates of market engagement among small businesses have risen recently, just 68% of businesses actively compared tariffs or switched supplier last year. That means nearly a third of small businesses are unengaged, sticking with the same supplier for years, and leaving better deals on the table. Shopping around and comparing energy deals, whether you use an energy comparison site or a broker, can find you cheaper per-unit rates for electricity and more favourable contract terms and potentially shave thousands off your annual energy bills.
• don’t let your contract auto renew: Many business electricity contracts automatically renew at the end of their term. Rates on these rollover contracts will be more expensive than you were previously paying, so you should avoid them, and either renegotiate with your current supplier or – even better – survey the whole market to find a better deal. Suppliers are required to write to you 60 days before your fixed term deal ends, notifying you of its expiry and whether it will auto-renew. To avoid auto renewal, make sure you’re aware of that expiry and renewal date of your energy contract and any notification period required for termination (these are generally between 30 and 120 days, with 90 days being standard). Microbusinesses are guaranteed special protections under Ofgem rules, to combat low rates of switching among these firms and prevent them from being ripped off by auto renewal. If you qualify as a microbusiness, you can cancel your energy contract with just 30 days’ notice. Additionally, when your supplier sends you your renewal notice 60 days before your contract ends, they must include details about your old rate, your new rate, and your annual consumption – all the information you need to compare energy and find a better deal elsewhere.
• negotiate: Unlike in the domestic energy market, businesses are able to haggle with suppliers to bring down their prices. When you get a quote for business electricity, you should get on the phone and see whether they can meet your specific energy needs and whether that quoted price can move.