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Understanding Your Business Energy Bill
It’s essential that you understand your business energy bill. You should know what you’re being charged for and understand how these charges are applied. This could save you from overpaying for your business gas and electricity.
In this guide, we’ll help you understand your business energy bill and what makes up your charges.
How does business energy differ from domestic energy?
There are a few differences between domestic and business energy contracts. These include:
Business energy contracts are longer than domestic deals. Under a fixed rate deal, a business can be locked in for up to four years. With a domestic contract, this is usually just two years.
Domestic customers can cancel their contract at any time by paying an exit fee. This is not the case for business users. Often, businesses will not be able to cancel their contract until it’s up for renewal. This makes it essential to make the right choice when selecting a tariff for your business energy.
How suppliers buy energy from the wholesale market can affect energy prices. For domestic customers, energy suppliers often purchase energy in advance. Due to the amount of energy used by businesses, most suppliers purchase energy once a contract has been agreed.
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What makes up my business energy bill?
Two main elements that make up your business energy bill. These are:
This is the amount you pay for your business gas and electricity per kilowatt hour (kWh).
A fixed tariff unit rate will stay the same throughout your contract. Variable rate deals will see your unit rate change depending on market activity.
Selecting a low unit rate tariff can reduce your business energy bills. However, some contracts may offer a low unit rate with a high standing charge. Unit rate costs can also depend on the regional location of your business.
A standing charge is a daily fee that you pay to your supplier. This covers the cost of delivering gas and electricity to your premises. It also helps cover supplier costs such as network maintenance, meter readings, transportation, and distribution.
Businesses do have the option of choosing a tariff with no standing charge. However, unit rates do tend to be higher on no standing charge tariffs. As a result, they are best suited to businesses that operate at weekends or on a seasonal basis.
What other factors make up business energy bills?
Your tariff’s unit rate and standing charge are the main factors that make up your energy bill. However, there are other costs you need to be aware of. These include:
Wholesale costs account for around 38% of your energy bill. Gas and electricity wholesale costs are volatile, and increases can affect your price per kWh.
Wholesale costs can change every day depending on supply and demand. Retail energy prices are therefore set higher than wholesale costs to prevent continues fluctuations. However, prices can be affected if wholesale costs breach the retail price.
You’ll be charged 20% VAT on your business energy bill. Domestic customers are typically charged 5%. Businesses with low energy consumption are sometimes able to get their VAT charges reduced to 5%.
This depends on the amount of energy you use. If you use less than 33 kWh of electricity or 145 kWh of gas on average per day, you may be entitled to pay a reduced VAT rate.
You may also be able to get your VAT reduced if you have a domestic element to your business.
Climate Change Levy (CCL)
Climate Change Levy is a fee that you are required to pay for every unit of non-renewable energy your business uses. The government created this initiative to help combat climate change and promote the use of renewable energy sources such as solar panels, wind turbines and hydro power.
Businesses that use renewable energy can be exempt from paying CCL. You can also avoid paying this levy if you use less than 33 kWh of electricity and 145 kWh of gas a day.
Network maintenance, losses and usage can impact the cost of your business energy bill. This includes energy transportation, distribution, transmission, and balancing costs. Network charges typically account for around 23% of your business energy bill.
Is there anything else that I need to look out for?
It’s essential that you know your business energy contract’s end date. You can find this on a recent energy bill or your original contract. Keeping note of this will help you avoid expensive out of contract or rollover rates.
If you run a micro business, your supplier must send you a renewal letter. This will contain your renewal rates, current rates, and current usage. You should bear in mind that renewal prices are often much more expensive than other options.
Energy suppliers are not required to provide larger businesses with renewal letters. This means the onus is on you to remember your contract end date.
Comparing energy prices is the most effective way to find a cheaper energy deal. You can also arrange for your new contract to start as soon as your current deal ends.
How can I reduce my business energy bill?
There are several ways in which you could reduce your business energy bill. From investing in a renewable energy source and joining a Feed-in-Tariff (SEG) scheme, to encouraging staff to become more energy efficient.
At Business Electricity Prices, it’s our goal to help you manage your business energy and lower your bills. That’s why we’ve created a number of energy-saving guides to help you reduce your business overheads.
Our top suggestion for reducing your business energy bill is to compare energy prices and switch suppliers. With our free online comparison tool, you can find the best energy tariff for your business in minutes.
Once you’ve chosen the tariff that’s right for you, our experts will be on hand to support you throughout your switching process.
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