Our guide to a your commercial power supply
What is a commercial power supply? A basic question with a simple answer: it’s the energy used to power your business, in the same way that energy powers your home. It’s your gas and/or electricity supply and, without it, all commerce would grind to a halt. Given it’s a necessity, it’s worth understanding a little more about your commercial power supply – all knowledge is power, and the more your understand, the more you can take control of your business energy and, ultimately, save costs on this necessity. So here is our handy guide to commercial power supply. We’ll look at tariffs, suppliers, environmental schemes and much more. And, of course, if you have any further questions please don’t hesitate to contact the team here at Commercial Energy Group.
What costs more, domestic or commercial energy?
As a general rule of thumb, like for like (or unit rate for unit rate) your commercial power supply is cheaper than your domestic energy supply. Broadly speaking, the larger the business the cheaper the unit rate, but businesses are subject to additional charges which don’t apply to householders. Notably, homeowners only pay 5% VAT on their energy bills, whereas business – unless they qualify for a lower rate – pay 20%. Your business may qualify, and we’ll get to that shortly.
Businesses may also have to pay the Climate Change Levy (CCL), which adds to the cost of electricity. Again, we’ll explain a little more about that, as it does not apply to all businesses.
How much will I pay for my commercial power supply?
There are two charges that will appear on your energy bill, which you need to use for price comparison purposes.
- Standing charge: this is what you pay to have gas or electricity supplied to your commercial premises and is normally given as a daily rate.
- Per kWh: this is the amount required to sustain 1KW of energy for one hour and shows you how much you pay for each unit.
It’s a really good idea to understand how much daily usage you will need in order to compare prices effectively.
What is the tariff system for commercial power supply?
As with domestic energy supplies, there are different tariffs for commercial use.
Fixed tariffs:
These are where you agree with your supplier to pay a fixed amount for the duration of your contract. This is generally the cheapest option, but do beware signing up for long-term contracts – if you want to exit early, perhaps because you can get a better deal elsewhere, you are likely to pay a hefty termination fee, or you may not even be allowed to leave. You are allowed to give notice of leaving generally three to six months before your contract ends. Make a note of the end date: once it expires, you are likely to be automatically rolled into a new contract which may well be more expensive or be put onto 'out of contract' rateswhich will be higher.
Variable tariffs
With a variable tariff you will pay only for the energy you use each month. The catch is that the rate will be higher than on a fixed tariff, with no protection from fluctuations in the market price of gas and electricity, which can be wide.
Flexible tariffs
These can be attractive for larger businesses in particular – again, the team here at Commercial Energy Group will be able to advise you. The flexible tariff is created based on baseload (your predicted energy use) and peak usage (when unexpected random spikes occur). Your business then block buys energy, and can sell any unused energy back to the grid.
Green tariffs
Some commercial power supply comes from electricity generated by renewable sources, such as solar or wind power. This tariff is great for demonstrating your business’s green credentials, but will generally be more expensive. However, there is an increasing move towards ‘green’ energy which should make the green tariff more affordable in future.
Deemed and default tariffs
When you move into new premises, you will automatically be put onto a deemed contract rate, unless you have already agreed a contract with a supplier. The same happens if you end a contract but continue to use energy from that supplier (also called a default tariff). This is why it is so important to have an agreed contract in place, with an energy supplier, which best suits your business.
Does my company qualify for reduced VAT on the commercial power supply?
The standard rate of VAT for commercial energy is 20% but in certain cases businesses are entitled to the lower 5% rate, which mirrors the domestic energy supply VAT rate.
Your business will qualify if, on average, your business uses:
- Less than 33kWh per day (1,000kWh per month) of electricity
- Less than 145kWh per day (4,397kWh per month) of gas
- The majority of the energy you consume is used in a domestic setting
- You are a charity or a not-for-profit organisation
If you are entitled to the lower rate, it should be applied automatically but do check and let your supplier know if you feel you are on the wrong rate.
The Climate Change Levy and other charges
The government’s target is to reduce CO2 emissions by 80% by the year 2050, compared to the levels in the 1990s. You can read more about the aims of the Committee on Climate Change here. In order to meet the target, the government imposed a Climate Change Levy, which aims to incentivise businesses to increase energy efficiency and to reduce carbon emissions, and it is paid on electricity, gas and solid fuel. It is paid at either the main rate or the carbon price support rates. The CCL applies to businesses in the following categories:
- Industrial
- Commercial
- Agricultural
- Public services
As with the higher rate VAT, some businesses are exempt from this. These include:
- Businesses using small amounts of energy
- Charities
Electricity, gas and solid fuel are also typically exempt from the full CCL rates if any of the following apply:
- They will not be used in the UK
- They’re supplied to or from certain combined heat and power (CHP) schemes registered under the CHP quality assurance (CHPQA) programme
- The electricity was generated from renewable sources before 1 August 2015
- They’re used to produce electricity in a generating station which has a capacity of 2MW or greater
- They will not be used as fuel
- They’re used in certain forms of transport
If your business is energy intensive and you have entered into a Climate Change Agreement (CCA) with the Environment Agency, then you pay a reduced CCL rate. Energy intensive businesses can get a 90% reduction for electricity and a 65% reduction for gas, liquefied petroleum gas (LPG), coal and other solid fuel. If you think your business may qualify for a CCA, take a look at the government guidelines here.
Where does my commercial power supply come from?
Energy suppliers in the UK are dominated by the Big Six, and they are: British Gas, EDF, Eon, Npower, Scottish Power, and SSE. These six corporates were created from the energy market privatisation of the Nineties and account for 81% of the energy supply market. There are, however, an increasing number of smaller suppliers entering the energy market, who are seeking to challenge the Big Six and they can be just as competitive and offer an excellent service. Size is not everything!
How to choose a commercial power supply provider
This is where you need an energy broker, such as the team here at Commercial Energy Group. We will shop around for you among the Big Six and the smaller competitors and find the best deal for your particular business needs, essentially, we do the hard work of shopping around, present you with the best energy solution for your business, and you save money and time.
We can help you save up to 30% on your energy bills, so do get in touch with the team to get your free energy quote.