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All you need to know about energy to start a business

When it comes to energy tariffs, choosing one for your business is different from your domestic energy plan. The complexities of business energy can be confusing and difficult to grasp, especially if you're a new business owner. To ensure you make informed decisions and keep your energy costs in check, here's everything you need to know.

The Key Players in Business Energy

Business energy in the UK is primarily provided by the 'Big Six' energy suppliers, which include British Gas, EDF Energy, E. ON, npower, Scottish Power, and SSE. These giants have been serving businesses for years.

However, the energy landscape has seen a significant shift in recent years. Smaller, independent energy suppliers have emerged, offering both domestic and business energy services. Many of these smaller players offer competitive prices and often receive high customer service ratings. Some even specialize in renewable or green energy tariffs. These include Bulb, Ecotricity, Good Energy, Green Energy UK, Octopus Energy, Smartest Energy, and Total Gas & Power.

Additional independent suppliers, such as Axis Energy, Corona Energy, Haven Power, Opus Energy, Energy (business electricity only), Energy, and Utility Warehouse, also offer various business energy services.

Choosing the Right Supplier

When you compare business energy tariffs, you'll face a crucial decision: opt for a well-known Big Six supplier or choose a smaller, potentially cost-saving, independent provider. Your choice will impact your business's bottom line.

Types of Business Energy Tariffs

In business energy, you typically have two main types of tariffs to choose from:

  1. Fixed-Term Tariff

    A fixed-term tariff locks in a specific rate for each unit of energy you consume over a predetermined period, usually lasting between one to five years. While these tariffs provide cost predictability, they often come at a higher price. If you need to exit your fixed deal early, prepare for steep exit fees or, in some cases, restrictions on early termination.

  2. Variable Rate Tariff

    With a variable tariff contract, your energy rate fluctuates with wholesale market prices during the contract's duration. This type is generally pricier than fixed-rate tariffs, but it can benefit from price reductions when wholesale prices fall significantly.

    Remember, whether you have a fixed or variable contract, it's crucial to shop for new deals well in advance of the contract's expiration. Failing to do so can result in you being automatically shifted to a costly 'out-of-contract' rate.

Rate Variations by Time

Some suppliers offer rate variations based on the time of day. They may categorize rates as 'Day,' 'Evening,' 'Night,' and even a 'Weekend' rate. Typically, 'Day' rates are the most expensive. If your business primarily operates outside of these peak periods, consider a tariff that offers lower rates during those times.

Green Business Energy

Yes, you can go green with your business energy. Several suppliers provide green energy tariffs that match the amount of electricity you use with energy from renewable sources like solar, wind, biomass, or hydroelectric power. Some suppliers, like Bulb, also offset carbon emissions by supporting carbon reduction projects. Others, such as Good Energy, have their own renewable energy sources like wind and solar farms.

Separate Gas and Electricity Suppliers

Unlike domestic energy, dual fuel business energy tariffs, where both gas and electricity come from a single supplier, are not common. This means you can choose different suppliers for your business gas and electricity to maximize savings.

Cost Comparison: Business vs. Domestic Energy

In general, business energy unit rates are significantly cheaper than their domestic counterparts. Larger businesses enjoy even lower unit rates because suppliers purchase commercial energy in bulk for the contract's duration. Domestic energy suppliers, on the other hand, buy energy monthly. However, businesses are subject to a 20% VAT, while domestic consumers pay only 5% VAT.

Additionally, businesses must pay the Climate Change Levy (CCL), an environmental tax to promote energy efficiency and reduce carbon emissions. As of April 2023, the rates stood at 0.775p per kWh for electricity and 0.672p per kWh for gas. Exceptions to the 20% VAT and CCL rule include:

  1. Charities and not-for-profit organizations

  2. Businesses with low energy usage, defined as under 33 kWh of electricity per day and 145 kWh of gas per day

  3. Businesses with residential components, like B&Bs, care homes, caravan parks, or campsites, use 60% or more energy for domestic purposes.

Business Energy Meters

Large businesses using 100kW or more of electricity every 30 minutes are legally required to have half-hourly (HH) meters. These meters provide data to suppliers every half-hour.

Businesses consuming 70kW or more of electricity every 30 minutes can also opt for HH meters. If an HH meter isn't necessary for your business, consider getting a smart meter instead. Smart meters provide accurate data and eliminate the need for monthly readings, helping you monitor energy consumption more effectively.

Debt and Business Energy Switching

It's advisable to settle outstanding business energy bills before switching. If you have substantial debt, your current supplier may request payment before allowing the switch, although this is typically at their discretion.

Payment Methods

The most convenient way to pay your energy bills is through monthly direct debit, often accompanied by supplier discounts. However, remember that your monthly bills can vary based on energy usage, so ensure you're paying the correct amount. Discuss any necessary adjustments with your supplier.

Other payment methods include direct debit quarterly, bank transfers, BACS, or payments using bank giro slips or checks. Note that some payment methods may involve additional fees.

Multiple Business Premises

Managing energy contracts for multiple business premises can be a logistical challenge. Many suppliers offer multi-site energy contracts that bundle all your tariffs into one package with a single supplier. This streamlines the management of contracts with the same end dates and often results in cost savings due to bulk purchasing.

Working from Home as a Business Owner

Sole traders working from home may qualify for a business energy deal, especially if they meet the criteria for a micro-business. To be classified as a micro-business, you must fulfill at least one of the following conditions:

  1. Fewer than 10 employees with an annual turnover not exceeding €2 million

  2. Usage of less than 100,000 kWh of electricity annually

  3. Usage of less than 293,000 kWh of gas annually.

Micro-businesses enjoy certain protections, such as contract clarity and advance notifications of contract renewals.

However, if you aim to switch to a business energy contract while working from home, you'll need to demonstrate that your business operates from your home, and more than 50% of your energy consumption is for business purposes.

It's worth noting that whether you're on a business or domestic energy tariff, you can claim a portion of your electricity and gas usage as a business expense. This requires dividing your energy costs, often by the number of rooms in your home.

In summary, navigating the world of business energy tariffs is a unique experience. Choosing the right supplier, understanding tariff types, and considering your energy needs are essential for your business's success. By making informed decisions and staying proactive, you can manage your energy expenses effectively and ensure your business remains sustainable.

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