Understanding business energy contracts for your small or medium sized business.
It’s safe to say that running a small or medium sized business can feel like a balancing act sometimes. From juggling operations and managing staff to fine tuning your marketing plan. But somewhere in that mix, you've got to organise your energy. This is where business energy contracts come in. Our handy guide will help you comb through the jargon and make informed decisions for your commercial electricity and gas needs.
What are business energy contracts?
Business (also called ‘commercial’) energy contracts are the agreements between your business and energy supplier for the supply of electricity and gas. Micro, small to medium, and large businesses all need to get a contract in place. However, they're not the same as the domestic contracts you have for your home.
How do business contracts differ from domestic contracts?
The terms, pricing, and regulations for businesses differ quite a lot to domestic contracts. The reason for this is that businesses usually have different usage patterns and requirements. Plus, the energy market for commercial customers has different rules. As a result, there are often no cooling off periods, separate contracts for gas and electricity, and longer contract terms (usually up to five years).
What type of contract do I need?
The type of contract and how you pay for your energy depends on several factors, from the number of employees you have to, of course, your energy use. Naturally, a busy factory will have different energy needs to a small cafe and, therefore, different contract types.
What if I have a home based business?
If you run your business from home, there’s a chance you can remain on a domestic energy contract because your energy usage is mainly for non-business purposes. However, you should always check with your energy supplier if you're unsure.
Defining business sizes for energy contracts.
When it comes to energy for businesses, there are multiple categories. The size of your business, which is defined by industry regulations, plays a big part in the type of contract and protection you can get. These categories are:
Microbusinesses.
Small businesses.
Medium businesses.
Large businesses (commercial).
What are 'microbusinesses'?
The term 'microbusiness' is fairly common in the UK. According to the UK energy regulator Ofgem, your business meets the criteria if it has fewer than 10 employees (or their full-time equivalent) and your annual turnover or balance sheet total is no more than £2 million1.
However, if neither of these factors apply, you’ll still be considered a ‘microbusiness’ if you use no more than 100,000 kilowatt hours (kWh) of electricity or 293,000 kWh of gas each year1.
It's important to know that you might be classified as a microbusiness for one energy type (say, electricity) but not for the other (gas). For example, if your electricity use is low, but your gas use is high.
What is the new 'small business' category?
A new ‘small businesses’ category was introduced on 19 December 2024. Your business is in this category if it has between 11 and 50 employees (or their full-time equivalent) and has an annual turnover of up to £6.5 million or balance sheet total of no more than £5 million1.
However, if neither of these factors apply, you’ll still be considered a ‘small business’ if your business uses no more than 200,000 kWh of electricity or 500,000 kWh of gas each year1.
Breaking down business energy contract costs.
Your business energy bill can sometimes feel like a puzzle! There are various costs included in your bill, from taxes to wholesale costs. Plus, depending on your contract type, there'll also be a standing charge to consider. These costs form the unit rate you're charged for each unit of electricity or gas you use, measured in kWh. Let's explore the other elements that make up your energy bill.
Taxes.
VAT (Value Added Tax) is the most common tax businesses pay on their energy bills. However, some businesses, like charities, might be eligible for a reduced rate of 5%. There’s also Climate Change Levy (CCL), an environmental tax encouraging businesses to be more energy efficient.
Government schemes and levies.
These charges support government initiatives aimed at boosting renewable energy generation and supporting energy efficiency, including the Renewable Obligations Scheme (RO), which encourages electricity suppliers to use renewable sources.
Wholesale costs.
Wholesale costs are the price of the electricity or gas itself. These costs are influenced by global supply and demand, geopolitical events, the weather, and much more.
Network costs.
Your energy travels through a huge network of pylons, cables, and pipes. So, these costs are in place to cover the maintenance and operation of the transmission and distribution networks.
Third party services.
Third-party services can include costs like the sales commissions paid to brokers or consultants who helped to arrange your contract.
Other supplier costs.
Energy supplier operational costs are factored into your bill, including bad debt (customers who don't pay their bills), excess capacity charges (businesses with unused energy capacity), and Meter Operator Charge (MOP) and Data Collector (DC) Charges (the costs of managing and maintaining your energy meter and collecting use data).
Getting to grips with these components can help you understand your bill and highlight any potential areas for saving. Explore our electricity and gas business energy tariffs, and make the switch today.
Why your business energy bill might look different.
It's not just the components that can make your energy bill look different from other businesses. Several factors impact how your bill is presented and what charges apply.
Your business size.
As discussed, 'microbusinesses' and small businesses have different protections and potentially different pricing structures.
Your contract type.
No matter the contract type you’re on, it’ll impact how your costs are calculated and presented. Fixed term contracts give you certainty, while variable rates fluctuate with the wholesale market.
Your meter type.
Whether you have a smart meter, half hourly meter, or a standard meter, different types of meters affect how your consumption is measured and billed.
Your energy supplier.
Every energy supplier has its own billing system. While the underlying charges are similar across the industry, how they're presented usually differs. For example, some suppliers might offer a more detailed breakdown. It’s worth looking around and comparing suppliers.
We have more useful advice at hand to help streamline your moving process.
Getting a business energy contract when you move premises.
There are times when you’ll need to move your business. When you do, it’s important to sort your business energy contract properly to avoid any interruptions. Here's a quick step by step for a smooth process:
Contact your current supplier.
Once you have your moving date, let your current energy supplier know. You’ll need to share your new address, the date you'll be leaving your old premises, and a final meter reading.
Take that last meter reading.
On moving day, take clear, dated photos of your final meter readings at your old property. This provides proof of how much you’ve used up to that point. Your final reading is also used to close your account.
Find out who supplies your new property.
When you move properties, you might automatically be on a 'deemed contract' with the existing supplier at that location. Often, this isn’t the most competitive rate, so check other options. Ofgem can help you find out who supplies your property.
Create a new contract.
Once your new supplier is finalised, start searching for a new business energy contract. Compare quotes from different suppliers to find the best deal for you.
Give an initial meter reading.
Once you’re all moved in, take meter reading at your new property to ensure you're only charged for the energy you’ve used. If it's an old traditional meter, you might consider upgrading to a smart meter.
Discover more guidance and support on moving your business premises and managing your energy.
Your FAQs about business energy.