How to avoid wasting on enterprise vitality payments – what that you must know

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Energy bills are one of the biggest pain points for businesses. They’re costly and often confusing, especially for those more used to paying for energy in their home.

The electricity and gas may come from the same place, but business energy contracts differ drastically from household bills. Crucially, businesses do not get an energy price cap.

In our essential guide to business energy, we explain how commercial contracts differ from domestic bills, how much you might expect to pay, and how to compare business energy deals. 

There has been a lot of change to bills since energy prices hit their peak in 2022. 

Household bills dominated the headlines but this was also something which severely affected small businesses. A plan to help them was rolled out but this has ended and they now receive no support from the government. 

It means it is more important than ever to know how to get a handle on your business energy costs and shop around for the best deals.

Why is business energy different?

There are some essential differences between commercial and household energy, largely to do with how contracts work and how the energy is bought and sold.

The main difference between business and domestic energy contracts are the rates and charges.

Many businesses use more energy than households and tend to do so at different times of the day.

Arguably this is similar to households, which are more likely to use energy in peak times, such as before and after work. However suppliers tend to know how energy will typically be used, for heating, cooking, appliances and lights.

It means that suppliers can offer a standard tariff and everyone pays the same rates per kWh used.

Businesses are different because depending on the type of activity or premises, energy can be used in different ways and times of the day.

Commercial contracts also tend to be much longer than the standard 12 months that residential price fixes run for, with businesses locking in for three or four years, so that they can plan ahead with their finances.

However, this comes with higher risks for suppliers – if a business goes bust two years into a three year contract, they will have to recoup the costs, or of the energy market shifts they may end up out of pocket.

This means that suppliers don’t offer standard tariffs, as with households, and each contract is designed for each business.

Unlike households, businesses don’t benefit from a discount if they get their gas and electricity from the same supplier.

Instead, businesses have to take separate contracts for gas and electricity, even if it’s from the same supplier.

All of this makes switching business energy suppliers trickier than it is for your  home, which is why many small businesses opt for energy brokers.

However, there have been some issues with business energy brokers and how deals are made. This means it is important to find a broker than you can trust and ask them in detail about the deals they offer, costs and commission they earn.

Do businesses get a price cap?

Energy regulator Ofgem originally introduced an energy price cap for households to protect those who didn’t switch – as higher costs disproportionately affected the old and financial vulnerable. However, the price cap later provided essential protection for most households when fixed rate deals dried up as energy pries spiked. 

Businesses weren’t afforded the same energy price cap protection nor given the benefit of former PM Liz Truss’s emergency energy price guarantee.

Following a backlash, the Government announced the Energy Bill Relief Scheme, which provided a discount on wholesale gas and electricity prices for all businesses.

When this came to an end in April 2023, it was replaced by the Energy Bills Discount Scheme which offered a discount on gas and electricity depending on the rates paid to the supplier.

However, that scheme came to an end in March 2024, removing all government support for struggling businesses. It means that small businesses are once again at the mercy of volatile energy prices.

How much do businesses pay for energy?

The cost of business energy depends on the contract negotiated but businesses can get a guide on how much they may expect to pay for gas and electricity by using the latest unit rates and standing charges.

Analysis by business energy specialist Bionic* below shows how much businesses, both large and small, could expect to pay annually based on average usage figures.

Micro businesses are expected to pay £1,1014 a year for gas and £2,896 for electricity, while small businesses will pay for £2,046 and £6,063 for gas and electricity respectively.

Medium businesses should expect to pay £4,232 for gas and £12,637 for electricity, while large businesses will pay £5,663 for gas and £14,770 for electricity.

However, rates and bill size will depend on your business location and obviously your usage: some small businesses will merely need to keep the lights on, others will be running factories.

You will have to consider standing charges – a fixed daily charge paid to the supplier regardless of usage – and other fees like the Climate Change Levy.

There is also a standard 20 per cent VAT charge on business energy, compared to 5 per cent on domestic energy, although there are some exceptions.

Should businesses fix their energy bills?

Businesses tend to fix their costs for longer periods than households because suppliers bulk buy electricity and gas far in advance.

Fixing your energy can help with budgeting and managing cost flow in the long-term. However, there is always a risk that if you fix, prices could fall and you could miss out on potential savings.

Research by the Federation of Small Businesses last year found that 13 per cent of small firms fixed their energy contracts during the market peak in 2022.

How can businesses compare energy costs?

If you deal with your household energy bill, you will have most likely at some point put in your details into a price comparison website and picked the best option.

The energy switching market for households dried up as prices spiked, but fixed rate energy bills to switch to are making a return. 

Switching is not so simple for business energy, because contracts tend to be tailored to the firm. Suppliers use usage, business location and staff numbers to help work out rates.

This means you would have to ring around all gas and electricity suppliers to see what they have to offer.

This is why many companies turn to energy brokers to compare deals and advise on the deal that best suits their needs.

> See if Bionic can help you save money on business energy*