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The energy which powers your business is the same as that which powers your home, so you may assume that the commercial energy market operates in the same way as the domestic energy market. In fact, there are a number of key differences between the two. Knowing about these differences will help you understand how to find the best business energy deals, so we’ve put together a brief summary below.
In most cases, domestic energy contracts are rolling contracts with no definitive end date. Business energy contracts, on the other hand, are almost always fixed term deals. The fixed term is usually a period of one, two or three years, but can be as long as five years. There are some fixed price or fixed term deals available to households, but rolling contracts are most common amongst domestic customers.
Business energy prices are linked to ever-changing wholesale prices, so they change daily. Contrastingly, domestic energy prices do not shift with underlying market price changes, and are only likely to change once or twice a year.
There are a number of factors which make energy typically cheaper for businesses than households. The fact that there are much higher volumes of energy involved in business deals, for example, means that suppliers will sell it to businesses at much lower rates. Suppliers also offer bespoke prices to each business, making the market much more competitive. Conversely, domestic customers are charged the same for their energy as everyone else in their region – negotiation is not an option.
Businesses also save a lot of money on energy over time because of the nature of fixed term contracts. Their energy prices are usually fixed for the duration of their contract, meaning they’ll be unaffected by any significant rises in wholesale prices which occur during that period.
Another way in which business and domestic energy prices differ is that businesses and households pay different rates of VAT on energy. Domestic energy rates are subject to 5% VAT while business energy rates are subject to 20% VAT. Businesses are also required to pay the additional charge of Climate Change Levy on gas and electricity.
After entering a domestic energy contract, there is always a cooling off period during which the customer is free to cancel that contract. However, when it comes to the vast majority of business energy contracts, there is no such safety net. Businesses are deemed fully capable of entering a contract willingly and in full knowledge of the terms, so cooling off periods are not a feature of the market.
Businesses are not only denied a cooling off period – they’re usually completely unable to exit a fixed term contract any time before its end date. Domestic energy contracts can typically be ended any time because they simply keep rolling until the customer chooses to switch to a new one. Even in the less common cases where domestic customers have some type of fixed price or fixed term deal they will most likely have the option of ending their contract early for a small cancellation fee. This means that as a business owner, it’s much more important to be aware of and completely happy with the terms of any energy contract you’re about to enter.
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