A Simple Guide to Business Energy for SMEs

Introduction 

Managing energy costs is an important part of running a business, but understanding business energy can sometimes feel complicated. From choosing the right tariff and making sense of your bills to managing rising costs and finding the right supplier or energy partner, there’s a lot to consider. This can be particularly challenging for businesses with high energy use, extended or seasonal opening hours, tight budgets or lack of in-house energy expertise. 

That’s why we’ve created this simple guide to understanding business energy, covering everything you need to know to improve stability, make smarter decisions and reduce costs for your business. 

The Types of Business Energy Tariffs Explained 

There are lots of different types of business energy tariffs, with the best one for your business depending on your energy usage, budget, and how much flexibility you need. 

One of the main considerations is whether you should opt for a fixed or flexible energy contract. 

Fixed-rate contract: The price of a unit of energy in kWh (kilowatt-hour) is agreed upon and set for the duration of your contract. You monthly bill may go up and down each month depending on how much energy you use, but the price you pay per kWh is locked in. 

Fixed contracts are best suited to businesses that need stability and more predictable energy costs. This is because no matter what happens in the energy market, if you’re under a fixed-term contract, your prices will not rise. However, if energy prices fall, you will continue to pay the unit rate you signed up for. 

Flexible-rate contract: The price per kWh of a unit of energy could rise or fall depending on the markets. Most flexible-rate contracts operate on a rolling basis as opposed to a fixed length of time. 

Flexible contracts are best suited to businesses that are equipped to manage risk. 

If market conditions improve, your unit rate will drop, and your monthly bill may go down, however, if market conditions worsen, or an energy shock hits, your unit rate will rise, and your monthly bill may go up. 

Other types of business energy tariffs include: 

• Flex approach: Buy energy in advance, allowing you to take advantage of competitive market rates. 

• Pass-through: Some elements of your energy costs are fixed, whilst others vary according to market prices. 

• Time-of-use: A fixed-term contract with different unit rates depending on whether energy is used during peak or off-peak periods. 

Your Business Energy Bill: A Breakdown 

Your business energy bills are made up of a combination of your actual energy usage, fixed daily charges, and various taxes and levies.   

The charges you will see on your bill include: 

• Unit rate (kWh) – This is the cost of the energy you use, agreed when you sign your contract.   

• Standing charges – This is a fixed rate that covers the cost of maintaining the energy supply to your business premises.  

• Value Added Tax (VAT) – Most businesses pay VAT on energy at 20%, but some may qualify for a reduced rate of 5%. 

• Climate Change Levy (CCL) – This is a government tax on businesses energy use, designed to encourage energy efficiency and reduce carbon emissions. 

Just over one third of your energy bill is your actual energy use, the rest is made up of non-commodity costs. 

What Affects Business Energy Prices? 

There are lots of factors that can affect the amount you pay for your energy such as: 

Supply and demand – When supply exceeds demand, there is more energy available than needed, so prices tend to fall. Conversely, when demand exceeds supply, available energy is limited, causing prices to rise. 

Time of day – The cost of electricity can fluctuate during the day, with day-time rates being higher than night-time rates, due to changes in demand during typical business hours. If your business operates outside of typical ‘office hours’, you may be able to take advantage of these off-peak rates.  

Global and geopolitical events – Disruption such as political tensions, extreme weather events and natural disasters can cause issues with the production and transportation of electricity, affecting prices. 

There are also a number of government-imposed taxes and levies applied to energy bills, and businesses may be offered incentives in the form of lower VAT rates or removal of an environmental levy if they use less energy, move away from fossil fuels or adopt renewable energy. 

Why Are Business Energy Bills so Expensive? 

Energy costs account for a large portion of operating costs for many businesses. With 64% of businesses reporting concerns about rising energy prices, finding ways to reduce energy costs and improve efficiency has never been more important. 

There are several factors that can contribute to higher energy bills: 

• Energy intensive operations – Many businesses rely on energy-intensive equipment, machinery and processes such as heating, cooling, lighting, refrigeration and production equipment to keep their operations running.  

• Volatile energy prices – High consumption is only part of the problem, with highly volatile energy costs also having a great impact on business energy bills. Energy markets have experienced considerable volatility in recent years due to a combination of geopolitical events, supply issues and changes in wholesale energy markets. 

• Complex energy requirements – If your business operates across multiple buildings and meters and uses different types of energy, this makes effective energy monitoring essential for identifying where energy is being used and where improvements to efficiency can be made. 

• Inefficient equipment and outdated systems – Older equipment, poorly maintained machinery and inefficient heating, ventilation and air conditioning (HVAC) systems can consume more energy than necessary. Over time, this additional consumption can significantly increase operating costs. 

• Limited visibility of energy consumption – Without accurate, accessible energy data, it can be difficult to understand how much energy your business uses, or which areas are responsible for the highest costs. 

How Can You Reduce Business Energy Costs? 

When it comes to reducing energy costs, finding the right balance of reducing energy usage without compromising on service or product quality is essential. 

In order to do this, business owners should place their focus on using energy more efficiently, securing competitive energy contracts, identifying billing errors and investing in technologies that reduce long-term consumption. 

Some key ways that your business can reduce energy costs include: 

• Upgrade building efficiency – Improving insulation and draught-proofing windows and doors can help retain heat and reduce the amount of energy required to maintain comfortable temperatures. 

• Choose an energy contract wisely – Comparing suppliers, tariffs, contract lengths and pricing structures can help you secure a more competitive deal and avoid paying more than necessary for your energy. 

• Make use of off-peak times – Where possible, try to schedule energy-intensive activities during off-peak periods when energy rates are lower. 

• Upgrade energy-intensive appliances – Replacing older washing machines, tumble dryers, refrigerators, freezers and catering equipment with more efficient models can reduce electricity or gas consumption over their working lifetime. 

• Switch to LED lighting – Replacing traditional bulbs with energy-efficient LED lighting can reduce electricity consumption by as much as 80% whilst providing reliable lighting across bedrooms, corridors, communal areas and external spaces. 

• Reduce unnecessary energy waste – Simple measures such as switching off non-essential equipment and avoiding unnecessary lighting can prevent energy being wasted. 

• Review your energy bills regularly – Check meter readings, unit rates, standing charges, taxes and other fees to make sure your business is being billed correctly. Billing errors can sometimes go unnoticed for long periods, especially if you operate across multiple properties and sites. 

• Review your energy strategy regularly- Reviewing your energy contract, consumption and efficiency measures regularly can help ensure your business continues to get good value. 

How Can Assured Energy Help Your Business? 

At Assured Energy, we understand that managing your business energy can feel complicated or overwhelming. That’s why our team of energy experts are on hand to help you. 

Whether you need help understanding market fluctuations or simply want to compare the best rates from different suppliers, our team will do the legwork for you. 

Join thousands of customers already saving on their business energy bills and get your free quote today.