Business Energy Rates vs Household Energy Rates

For business owners, energy usage is one of the key ways in which costs can be cut while benefiting the environment. But while we’re all familiar with the costs of using energy at home, the costs of doing so in a workplace environment can be a little more opaque. The differences can be significant, but understanding these differences is critical in the informed decision-making processes that can lead to effective energy management and perhaps even improve your bottom line. 

Business Energy Rates Explained

Of all the components that commonly affect energy prices, the wholesale price on the market is the one that is common to all users, whether domestic or business. As we’ve seen over the last couple of years, energy prices have been destabilised by Russia’s invasion of Ukraine, leading to considerable increases. 

The prices of both gas and electricity are in part driven by the wholesale price of gas. The price you pay for your power is set by what’s called the ‘marginal generation unit’. When electricity demand is low it is met by cheap sources of power. This has traditionally included coal-fired and nuclear plants whereas renewables are now playing an increasing role. When demand increases, gas-fired generation (which is more expensive) is used as well and that price starts to increase. 

But this isn’t the only factor that contributes to business energy rates and their fluctuations. Taxation and other government initiatives can also have a significant effect on prices. 

How Much Do Businesses Typically Pay for Electricity?

The government issues quarterly reports on the amounts that businesses are paying for their energy use in pence per kilowatt hour (Kwh), according to the size of the business. For quarter three of 2023, the latest figures available at the time of writing, the costs of electricity for business users per Kwh, inclusive of the Climate Change Levy, were as follows: 

• Microbusinesses: 33.82p

• Small Businesses: 35.24p

• Small to Medium Businesses: 32.71p

• Medium Businesses: 31.32p

• Large Businesses: 29.43p

• Very Large Businesses: 23.64p

• Extra large Businesses: 23.74p

• Average: 29.08p

Is Business Energy Cheaper than Domestic?

On the surface, it may appear so, but there’s considerably greater nuance to the business energy pricing than there is to domestic energy pricing. The size of your business matters, as we can see from the above prices. Microbusinesses had a unit price 1.4 times higher on average over Q3 of 2023; this is economies of scale at work. But the word ‘average’ does also matter a lot there, since consumption patterns and other variables should also be factored in when considering business energy pricing. Energy prices for businesses are always bespoke. 

Why Are Commercial Energy Prices Higher Than Residential?

Energy prices for business users can fluctuate considerably more than for domestic users. In addition to this, VAT on energy use is charged at 20% for business users (as opposed to 5% for domestic users), while businesses also need to pay the Climate Change Levy, which domestic users don’t. 

Can I Switch My Business Electricity to a Domestic Plan?

In some circumstances, you can. If you run your business from home but would like to access a business energy plan, you will need to use more than 50% of your consumption for your business. This may sound like a lot of energy, but it does include heating and lighting during your office hours, so you may well find that it’s possible. 

Are There Penalties for Changing From Business Electricity to Domestic?

Business energy contracts tend to be fixed term and there will likely be early termination charges should you decide to switch to a domestic rate before your contract reaches its end. Your energy supplier will be able to advise you on when your contract is due to end.  

Are There Specific Regulations Governing Business Energy Rates in the UK?

The Energy Bills Discount Scheme runs for 12 months from 1 April 2023 to 31 March 2024, replacing the Energy Bill Relief Scheme which supported businesses and organisations between 1 October 2022 and 31 March 2023. The government’s website has further information on how it works. 

How Can Businesses Negotiate Better Energy Rates?

Business energy contracts are always fixed-term and they’re always bespoke according to your needs. Should you be coming towards its end, you can start getting quotes from different suppliers. If you don’t, once your contract ends, you’ll either be moved onto a rollover contract or a standard variable contract. It pays to do this early!

 Given that we’re all so familiar with domestic energy pricing, the nuances and differences in business energy pricing can come as a surprise. But as you can see, there are no one-size-fits-all answers to getting the best deal for your business. But a little digging into the way that your business uses energy and the various deals that are available can reap significant benefits for your business’s bottom line.