Electricity is essential for any business to operate, but finding the best deals and secure contracts is not quite as straight forward, and can often leave companies being forced to pay unnecessary, sometimes overpriced bills. In comparing suppliers, the flaw is that you must already know exactly what you are looking for. For example, what types of contracts are available? How can you switch and how long will that take? What suppliers are there to pick from?
Our guide is brought to you with the intention of answering these questions and giving you the information to make an informed decision as to what contract, and what supplier is best suited to you.
Understanding your business electricity
“Business Electricity” is a term used to refer directly to the electricity supplied to a workplace. It is designed to respond to the energy needs of commercial customers, and is different to domestic energy for this reason.
Understanding your contract and tariff
Business Electricity Contracts
Contracts can be confusing, but understanding some of the key terms involved when you sign could make the world of difference when it comes to understanding your agreement.
Your billing period can be decided between you and your supplier in the process of settling your contract. The billing period is the time between each bill, for example, monthly or quarterly. Small businesses may often use shorter billing periods in order to regularly check on their spending.
The unit rate on your contract is the price that will be paid for electricity per kilowatt hour (kWh) that your business uses. When looking for suppliers, it could be beneficial also to look for the lowest rate available, but the differences between each supplier differ depending on your businesses specific circumstances.
You will also be expected to pay a standing charge as part of your contract; this is a fixed daily fee included in the bill that covers maintenance to your electricity meter.
For high consumption customers, an Agreed Supply Capacity (ASC) is a set maximum demand of electricity that a business agrees with the supplier. One half hour period of electricity usage (in kVA) may be used at any point in the billing period for the supplier to check whether or not you are exceeding the agreed capacity of electricity.
If you are deemed to be exceeding capacity, there is risk of overloading the system and leading to a power cut, or dealing with large and expensive excess charges; whereas if you are not exceeding the limit of ASC, you should consider whether you are paying too much on a tariff that isn’t quite perfect for your business.
Household and business tariffs
The difference between household and business electricity tariffs are that a business is often offered cheaper rates than households, due to businesses generally consuming more electricity. In contrast to this, though, businesses often have to pay higher VAT on each bill alongside a series of levies and charges to comply with regulations.
While a business electricity contract is tailored to your specific business needs rather than being chosen from a set list of tariffs, a range of factors will influence the deals you are offered. Some of those specific factors would be your usage and business credit profile, especially if you are a larger customer or are on a half-hourly meter. It may be harder to compare tariffs due to the personal nature given to businesses, as a business will need to approach each supplier individually for their quote.
Business electricity contracts are often longer than households, and last anywhere up to 5 years. There will be multiple tariff types available to you, but you wont be able to shop around for a new deal once you have secured one, as energy is bought in bulk, and instead must wait until you reach your renewal window.
Unlike domestic energy switches, there is not a cool-off period for businesses once you agree to a contract. Once you have made the official agreement with a supplier, there is no ending your contract early. This is why it is so crucial that you are sure of every detail of your contract before you sign any documents, and avoid any nasty or confusing interactions on trying to exit your tariff.
So, what happens when my contract ends?
You should be given a renewal period nearing the end of your contract which will be outlined in the agreement you discussed when opening your account with the supplier. The renewal period comes with a list of options to encourage you to continue with the energy company you have chosen, but due to charges going up each year, it is often earlier to find a more competitive deal elsewhere as a new customer.
When your contract ends, you will be sent a final bill based on your current tariff, and may be expected to provide one final meter reading to ensure its accuracy. If you fail to notify your supplier of your switching, you will automatically be moved into an expensive and out-of-contract tariff that is likely going to lead to overpaying for your electricity. In order to avoid this, we suggest comparing prices and planning far in advance.
Understanding your bill
Understanding your bill is an important part of keeping track of your business and ensuring that you are being billed correctly. Knowing this information gives you the opportunity to monitor your usage and give you more control over your bills. Business electricity bills are similar to home electricity bills, but might vary between different suppliers.
Your business electricity bill should comprise of account information and a detailed breakdown of your charges. In some cases, you may be given a payment slip.
The account information you will both need to switch, and that which will appear on your bill is as follows.
- Account number – the unique number given to your account
- Your details – your business name and address
- Contract details – what tariff you are on, the start and end date
- Bill date – when your bill was sent
- Billing period – the period you are being charged for
- VAT number – a unique VAT registered to you
- Type or charge – whether accurate or estimated
- Meter Point Administration Number (MPAN) – a unique 21-digit number that signifies your electricity meter supply identification number
- Meter Serial Number (MSN) – a unique number that identifies your meter
- Contact details – a phone number to contact your supplier should anything go wrong
Breakdown of charges
- Billing period charges – how much you’re paying for the period
- Outstanding charges – the amount you owe from past bills
- VAT charges – the amount of VAT added at 20%
- Total amount due – all of the above combined
- Costs breakdown – a breakdown of your charges to show rates
The costs included in your bill
- The unit per rate kWh – this is the amount that you are paying per unit of electricity you use. The total of this will vary between billing periods. The rate is fixed on fitted term contracts bit will go up and down on variable contracts.
- A daily standing charge that converts the upkeep f your supply and management of your account
- The Climate Change Levy – A charge aimed at discouraging carbon emissions, as explained below.
A business may be offered cheaper unit rates due to the volume of electricity used, but if they are over a certain size they are subject to paying a 20% VAT on top of all of their bills. Charities that offer residential services are not required to pay VAT.
The Climate Change Levy (CCL)
All businesses are automatically taxed with a climate change levy, which is an addition used to discourage carbon emissions and less wastage and inefficiency.
Levy rate per kWh of electricity used
|From 1 April 2019||From 1 April 2020||From 1 April 2021|
This charge will continue to rise each year, but not every business is obliged to pay it. Like VAT, charities and businesses who consume a smaller amount of energy are not expected to pay the full levied charge.
Alternatively, businesses who consume a larger volume of electricity but ave signed the Climate Change Agreement (CAA) are also given a reduction on the CCL levy.
If you business consumes electricity outside of the UK or uses it for some forms of transport (excluding fuel) then your business may be except from the CCL entirely.
There is, though, more additional levies and charges included on your bill. This would include a Contract for Difference (CfDs), a Carbon Reduction Commitment, Transmission Network Use of System and Distribution use of System.
Contracts for Difference (CfDs)
With CfDs, the Low Carbon Contracts Company (LCCC) offers businesses a contract that supports those who generate low carbon electricity, by making it a financially viable option. This works by insuring businesses against their losses when generating renewable electricity. When/if prices are to fall, they will receive compensation through payment to make up the difference for them.
If your busses is not on a flexible or passthrough contract, none of this should be seen on your bill, as it is built in to the unit rate provided.
Carbon Reduction Commitment (CRC Efficiency Scheme)
The CRC Efficiency Scheme is somewhat of a “carbon tax”. It is aimed at reducing the carbon footprint of business electricity users, and you are charged for each tonne of CO2 emitted. Larger businesses who are not energy intensive but consume over 6,000 MWh per year are required to register with the scheme or risk a penalty fine.
Transmission Network Use of System (TNUoS)
The TNUoS is paid to the National Grid in order to cover both the cost of maintaining and transmitting energy from where it is generated to the rest of the country.
Distribution Use of System (DUoS)
The DuoS is required to maintain the distribution of electricity from the national grid to our businesses. Paid to distribution network operators (those who are licensed to distribute energy in the UK), this charge is based on the volume of electricity consumed by your business.
How is the cost of your electricity business plan calculated?
- Business sector
- Credit Score
- Dual-fuel contracts