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As a small business owner, it can feel like electricity costs are shrouded in secrecy. When you’re busy, the last thing you want to do is spend valuable time searching for the cheapest rates.
What’s more, business prices are refreshed more frequently than domestic energy prices, giving added pressure to the comparison process – if you don’t snap up a good rate it might be gone the next morning, whilst if you do commit, there is the chance that prices may drop the next day.
The first step in understanding whether your bills are reasonable, is to understand what charges your bill is composed of…
This is the element of energy bills that is most volatile. We cover wholesale costs in more details later on, but suffice to say they’re affected by a variety of things including world events, the weather and more. Many energy companies purchase energy in advance, meaning they should be able to buffer customers to a degree.
Also referred to as transmission costs, this refers to the power lines, gas pipelines, and cables that bring electricity into businesses and homes. The UK has an ageing, outdated, transmission network, and Ofgem has stated that network costs are likely to raise at some point in the future, which would have an effect on bills. The UK’s transmission network is run by the National Grid, whilst there are a number of distribution network operators (DNOs) that look after the UK’s towers and cables.
Environmental costs cover a number of different charges which aim to encourage the use of renewables. This includes the feed in tariff – which rewards small scale generators – and the renewables obligation – used to generate subsidies for those producing renewable energy.
Climate Change Levy (CCL)
The climate change levy is a tax imposed upon business energy that is designed to encourage greater energy efficiency – simply put, it makes your bills slightly more expensive, in the hope you’ll take steps to reduce the amount of energy you use. The climate change levy only kicks in when your energy usage exceeds 33kWh in a day for electricity, or 145 kWh for gas. Additionally, if you only use renewable energy, you won’t be charged the CCL.
There are two levels of VAT charged on energy bills: the standard rate and the reduced rate. Businesses pay the reduced rate if part of the gas supply is used for domestic or charitable non-business use – e.g. if you have job related accommodation (not including working from home), provide living facilities such as in care homes or children’s homes. Self catering holiday accommodation and caravan parks also pay the reduced rate. Charitable non-business use includes places such as churches, charities, schools and community centres which are funded by donations or grants.
This is where you pay for your energy suppliers costs. This includes salaries, overheads, marketing and balancing energy (for when they’ve bought too much or too little). Operating costs will vary by provider.
Business tariffs can be ‘blink and you’ll miss them’. Business energy prices tend to follow whole sale pricing – if wholesale prices rise, then it’s likely energy prices will follow suit. Wholesale prices are the main non-fixed elements in energy bills.
As we mentioned earlier, there are a number of things that can affect wholesale prices. For example:
Energy suppliers buy wholesale gas well in advance, meaning they have to estimate how much they will need – this is why energy markets can be thrown into chaos if there is a particularly cold snap in Winter, as suppliers will need to dip into their pricey emergency reserves. If you are on a fixed rate tariff, you only have to think about energy prices when you come to renew, however those on a variable rate tariff will be affected by fluctuations in the market.
Energy prices have risen steadily over the past few years, and the trend doesn’t look likely to stop, at least according to Energy UK’s chief. However, energy suppliers are under increasing pressure to absorb rising costs, instead of passing them onto consumers.
The only real way to check that your energy bills are competitive is to get out there and compare. You can use an energy broker like Switch My Business who will compare the market for you, or you can contact suppliers individually. The benefit of working with a broker, like ourselves, is that you will receive quotes from a range of suppliers – some of whom you may not even have heard of. What’s more, we only work with suppliers we trust.
If you are on out of contract or deemed rates, you can be fairly certain that you aren’t getting value for money on your bills. If you didn’t renew your energy contract when your last contract ended, you will have been rolled onto out of contract rates, which are widely agreed to be very poor value. If you have moved into new premises and never agreed a new contract with your energy supplier, you are likely to be on deemed rates, which tend to be very expensive. If you are on deemed or out of contract rates, your supplier cannot stop you switching providers at any time and you won’t be charged a termination fee.
Want to go ahead and get a free energy quote for your business? Fill in our online form or call us now on 0800 411 8830.
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