After staying with the same business energy providers for years, customers build loyalty toward them. But what’s more important than being loyal is finding the best deal for you and your business.
Business owners understand that there is a difference between their business energy contract and domestic energy contract. However, the exact details of this difference are usually unknown, and the main reason for that is the lack of curiosity.
In this article, we will cover the key differences between business and domestic energy contacts so you can be sure that you are on the right contract! So without further ado, let’s start the comparison.
What are the primary differences between energy used in homes and businesses?
The main differences between domestic and commercial energy can be summed up as follows:
- Business energy is typically less expensive per unit than domestic energy (depending, obviously, on your business energy providers).
- However, domestic energy is only charged 5% VAT, while business energy is charged 20% VAT.
- Business energy also has to factor in taxes and energy regulatory requirements, which domestic energy clients don’t have to worry about
- Contract terms are often longer for business clients than for domestic clients.
- Domestic customers typically require less information and receive simpler energy quotes, but commercial customers typically require more information and get a more sophisticated energy quote.
Comparing business and domestic energy contracts (pros and cons)
The UK has two different types of energy contracts – business and domestic. Both have their own benefits and drawbacks.
Business energy
Benefits of business energy contracts:
– Usually, businesses can negotiate a better price for their energy contract than domestic customers. This is because businesses use more energy, so suppliers are keen to win their business.
– Businesses can choose to have a fixed-rate contract, which means they will know how much their energy will cost for the duration of the contract. This can help with budgeting and cash flow planning.
Drawbacks of business energy contracts:
- Business energy contracts tend to be longer than domestic contracts, so businesses are tied in for longer.
- If a business wants to switch suppliers, it may have to pay an early termination fee.
Domestic energy
Benefits of domestic energy contracts:
- Domestic customers can usually switch energy suppliers much more easily than businesses, so they are not tied in for as long.
- Domestic energy contracts often have much shorter minimum contract lengths, so customers can switch if they find a better deal.
Drawbacks of domestic energy contracts:
- Domestic customers usually don’t have as much negotiating power as businesses, so they may not be able to get as good a deal on their energy contract.
- Domestic customers may not be able to choose a fixed-rate contract, so their energy costs could go up or down during the contract.
Find out a more detailed report on how the contracts differ for both business electricity and domestic electricity.
Other factors influencing the prices of energy in the UK
In the United Kingdom, both businesses and households are subject to a variety of factors when it comes to the cost of their energy. While some of these may be out of their control, others can be managed in order to keep costs down. Here are some key factors that affect prices:
The cost of raw materials:
The price of fossil fuels such as coal, oil, and natural gas fluctuates in global markets. These variations are passed onto consumers through changes in the wholesale price of energy, which make up a large proportion of household and business energy bills.
The price of carbon:
A tax on carbon emissions (known as the climate change levy) is added to commercial electricity bills. The amount charged depends on the carbon dioxide content of each fuel used by power generators.
This means that businesses using more renewable or lower-carbon energy sources can make significant savings on their energy bills.
The cost of environmental compliance:
In order to meet environmental regulations, power plants must install certain pollution-reducing technologies. The cost of this equipment is typically passed onto consumers through higher energy prices.
Transmission and distribution charges:
Transmitting electricity from power plants to customers’ premises leads to significant infrastructure costs.
Distribution companies add these charges to the customer’s final bill, along with a margin for profit.
In general, businesses that use more electricity will pay more for transmission and distribution costs than smaller domestic customers.
Taxes:
Businesses and households in the UK are subject to a variety of VAT on their electricity bill.
The current rate for domestic energy is 5% and 20% for commercial energy, meaning that a proportion of every pound spent on energy goes towards funding government services.
Pricing criteria:
For domestic consumers, the pricing criteria are fairly simple and often consist of two factors; method of payment and geographical location.
As for business consumers, there are a few more factors, and those include; business type, geographical location, contract length, demand profile, method of payment, and credit score.
Summary
In essence, utility contracts in the United Kingdom are normally categorized as business or domestic. The main distinction between these two categories is the size and scale of the customer.
Business energy contracts are for companies that use more power than just a regular home, and as such, they come with certain privileges and catches.
For example, businesses get to choose their own energy supplier, while residents have to go with whatever default company is chosen by their local government.
This can be a big advantage for businesses, as they can shop around for the best rates and customer service.
However, it also means that businesses have to be more careful about their usage, as they will be charged higher rates if they exceed their contracted amount of power.
In addition to this difference, business energy contracts also tend to have longer terms than domestic ones. This is because businesses need greater stability when it comes to their power supply, and so signing a long-term contract gives them this peace of mind.
Of course, this means that businesses are also locked in at one rate for the duration of the contract, which can be risky if prices go up over time.
Overall, there are both advantages and disadvantages to having a business energy contract compared to a domestic one. It mainly depends on the needs of the customer as to which type of contract would be better for them.
Interesting Related Article: “Reducing Your Business’s Energy Costs”
