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What is the difference between domestic and commercial energy rates?


This article was updated on 12th September 2016

This month, a price hike by Co-Op saw increased speculation about rising prices for domestic energy bills. You may assume that if domestic prices rise, business prices will too.  However, commercial and domestic energy bills are have some very important differences…

Fixed price business energy

Traditionally, business energy is taken out on a fixed rate contract, over a period of up to 4 years. The benefits of fixed price contracts include better budgeting – as you know how much you will be paying for energy each month – and protection from market fluctuations. However, if energy prices drop in the middle of your contract, you won’t be able to take advantage of the reduced rates.

Domestic rates allow for a cooling off period, something that commercial energy contracts do not.  With that in mind, you need to be really sure you’re making the right decision when you agree prices for your business. Likewise, terminating a business energy contract tends to be more expensive than ending a domestic energy contract.

Energy suppliers know when domestic users will use most of their energy and at which time of the year but it’s much more difficult to predict business energy use. Some energy suppliers will buy energy for business contracts up front at the beginning of the contract, whilst others buy in bulk ahead of a business taking out a contract.

Predicting business energy consumption

Business energy users tend to consume energy at different times of the day, making usage predictions harder. While domestic users benefit from so-called ‘certainty’ of usage, business energy users don’t which is why energy suppliers have different rates for domestic and business energy users. This is changing, however, with the introduction of half-hourly, or smart, meters. Smart meters allow businesses to see almost real time data on their energy usage, meaning that future contracts can be negotiated with greater precision.

Some business energy contracts will have minimum and/or maximum usage levels which, if exceeded, can result in a fine. Therefore it’s important for businesses to know as much about their energy usage as possible when negotiating a contract.

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Location,credit rating, annual consumption

Commercial energy rates are also dependent on where a business is located, along with its credit rating and annual consumption. Business energy requirements tend to be more complex than consumer energy – particularly when there are multiple sites involved.

Market driven business energy prices

Commercial energy prices can change on a regular basis, unlike domestic prices, because they are market driven. It’s for this reason that you can be given a price one week and call back the following week and the price you were quoted is no longer available – it may have gone up – or it may have gone down. This is a problem with business energy prices – you can find what you think is a great price one day but because of the nature of the market you could find a cheaper price the next week or even the next day – or you may find that the prices have gone up over night.

Domestic energy prices, on the other hand tend, to be less variable, changing perhaps only once or twice over 12 months.

Comparing commercial energy prices and switching to the best business energy deal can be a minefield. Our experts closely track movements in the energy market meaning we can easily find the best deal for you, leaving you to go back to running your business. Give us a call on 0330 0100 251 (or request a call back using our form) but remember that prices can go up or down overnight!

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