Business Energy: How Business Electricity and Gas Contracts Work

How is business energy different from domestic energy?

Business energy has no price cap, is usually bought on a fixed-term contract you are expected to see through, and does not come with the general cooling-off right that households have. It also usually carries a higher rate of VAT and an extra environmental tax.

If you have only ever bought gas and electricity for your home, a few things about business energy can come as a surprise:

• Price is negotiated, not capped. A supplier prices your business on how much you use, where you are, your meter type, the length of fix and the wholesale market. Two neighbouring shops can pay quite different prices.
• Quotes are short-lived. Because they track the wholesale market, quotes may only be held for a day or so.
• You sign up for a term. You are generally bound until the end date. Some contracts let you leave early for an exit fee; many don't.
• No general cooling-off period. Households can cancel distance contracts within 14 days. Businesses have no equivalent general right, and a contract agreed on a recorded call can be binding. Check your contract's terms, but don't assume you can change your mind.
• Different taxes. Most business supplies pay 20% VAT and the Climate Change Levy, covered below.

Whether a supply counts as business or domestic depends on how the premises are used, not on who pays. A flat above a shop on its own meter may be domestic.

What types of business energy contract are there?

The main options are fixed-price contracts, flexible or pass-through contracts, single or multi-rate tariffs, and green or renewable-backed tariffs. Most small businesses choose a fixed price for a set term.

Fixed-price contracts

The unit rate and standing charge are fixed for the term. Your bill still varies with use, but the price per unit doesn't, which helps budgeting. If wholesale prices fall, you stay on the agreed price. Some "fixed" contracts still let certain network or government charges be passed through, so read the terms.

Flexible and pass-through contracts

On a pass-through contract, some costs, such as network charges, are passed on at cost. On a flexible contract, energy is bought in blocks over time rather than fixed on one day. Both are mostly used by larger and multi-site businesses, as they need active management and carry more price risk.

Single-rate and multi-rate tariffs

A multi-rate tariff, such as day/night, charges different rates at different times and needs a meter that records them. It only makes sense if enough of your use falls in the cheaper periods, so compare total cost on your real usage.

Green and renewable-backed tariffs

For electricity, a green tariff usually means the supplier matches your use with certificates such as Renewable Energy Guarantees of Origin (REGOs), or buys from renewable generators directly. The power reaching your premises is the same either way, so ask how the tariff is backed and whether it costs more. Green gas tariffs vary more: some include biomethane, others rely on carbon offsetting.

What makes up business energy prices on a bill?

A business energy bill is built from the unit rate, the daily standing charge, VAT, the Climate Change Levy and, for larger half-hourly sites, capacity and other network charges. Any broker commission is usually inside the unit rate or standing charge.

The de minimis limits are a rough guide based on daily use; if you are near the line, ask your supplier which rate applies. VAT-registered businesses can usually reclaim VAT on energy. A low unit rate with a high standing charge can suit a heavy user but cost a light user more, so ask for an annual cost on your actual consumption.

What do MPAN, MPRN, half-hourly and smart meters mean?

The MPAN identifies an electricity supply and the MPRN a gas supply. Half-hourly meters record electricity use every 30 minutes and are fitted to larger sites, and smart meters send readings to the supplier automatically.

MPAN (Meter Point Administration Number)

The reference for an electricity supply, shown on your bill, often in a box starting with an "S". It tells a supplier your region and meter type.

MPRN (Meter Point Reference Number)

The reference for a gas supply point, also on your bill. It is shorter than an MPAN.

Half-hourly meter

Records electricity use in 30-minute slots. Sites with high demand normally have one. Half-hourly contracts are priced differently, usually with a capacity charge and network costs that vary by time of day.

Smart and AMR meters

Smart meters and older automatic meter reading (AMR) meters send readings remotely, so bills use actual readings rather than estimates and you can see when energy is used.

Multi-rate meter

Records use in more than one register, for example day and night, so the supplier can charge different rates.

Each meter has its own reference and standing charge, so check for meters you no longer need.

What happens if you have no business energy contract?

Your supply doesn't stop, but you pay the supplier's out-of-contract rate (if your contract has ended) or deemed rate (if you never agreed one). Suppliers set these themselves and they are usually higher than a negotiated contract price.

There are two common ways to end up without a contract:

• Your fixed term ended. If you didn't renew or give notice, you move onto out-of-contract prices or, under some contracts, roll onto a new term. Ofgem limits how rollovers work for microbusinesses.
• You started using energy at new premises. The connected supplier treats you as on a deemed contract.

You are normally free to agree a contract straight away, usually with no exit fee. The longer you wait, the more you pay at the higher rate.

When should you renew a business energy contract?

Start looking well before your end date. Many suppliers will quote for a new contract months in advance, and some contracts need written notice within a set window to stop an automatic rollover.

1. Find your end date. It should be on your bill or contract. If you can't find it, ask your supplier in writing.
2. Read the notice terms. Check whether you need to give notice, how (email, letter, portal) and by when. Keep proof that you sent it.
3. Treat the renewal letter as one quote. You don't have to accept your supplier's renewal offer.
4. Get quotes in good time. A new contract can usually be agreed in advance and start the day after the old one ends, so you are not left on out-of-contract rates.
5. Diary the new end date as soon as you sign, so the same thing doesn't catch you out next time.

What protections does a microbusiness get on business energy?

Ofgem treats you as a microbusiness if you have fewer than 10 employees and turnover or a balance sheet of no more than €2 million, or use under 100,000 kWh of electricity or 293,000 kWh of gas a year. Microbusinesses get a 12-month back-billing limit, clearer contracts and access to the Energy Ombudsman.

Either test is enough. The main protections are:

• Back-billing limit. If a supplier hasn't billed you correctly, it generally can't charge a microbusiness for energy used more than 12 months before the bill, unless the delay was your fault.
• Clear contract information. Before you agree a contract you should get its main terms, including prices, length, end date and how to give notice.
• Broker costs on the contract. If a broker arranges your contract, the supplier must show you how much of what you pay goes to the broker.
• Complaints. Complain to the supplier first. If the complaint isn't resolved within eight weeks, or you get a final response you disagree with, you can usually take it to the Energy Ombudsman free of charge.

Ofgem has extended some of these rules to small businesses above the microbusiness limits; check Ofgem's guidance for business customers if you are unsure which apply.

How do business energy brokers work, and how can you check one?

A broker gets prices from several suppliers and arranges the contract you choose. Most are paid commission by the supplier, added to the prices you pay. Before agreeing anything, ask which redress scheme they belong to and how much commission is in the quote.

Brokers, also called third-party intermediaries (TPIs), range from one-person firms to large consultancies, and many don't cover every supplier. Using one saves ringing round, but the service is rarely free: commission is usually built into your rates for the whole contract.

Questions to ask any broker:

• Which dispute resolution scheme do you belong to? Suppliers are expected to work only with brokers signed up to an Ofgem-approved scheme. Every broker we pass details to is a member of one.
• How are you paid, and how much is in this quote? Ask for the figure in pence per kWh and as a rough total over the contract.
• How many suppliers did you compare?
• Is the call recorded, and will this call agree a contract? Make sure you know when you are being asked to say yes.
• Can I see the terms in writing first? A reputable broker will send them.

Be wary of pressure to decide on the spot or callers who claim to be from your supplier when they are not.

What should you do about energy when moving into business premises?

On the day you take over, read and photograph every meter, find out who supplies the premises, and tell them you are the new occupier. Until you agree a contract you will be on deemed rates, so arrange one quickly.

1. Take dated meter readings on the day you get the keys, so you don't pay for the previous occupier's use.
2. Find out who the supplier is. Ask the landlord or outgoing occupier, or trace it from the MPAN or MPRN.
3. Tell the supplier you have moved in, with your readings and the date.
4. Check your lease. Some landlords supply energy themselves and recharge tenants, in which case you may not be able to choose a supplier.
5. Agree a contract with the current supplier or a new one.
6. When you leave a property, give the supplier notice and final readings so you stop being billed.

What information do you need to compare business energy?

To get accurate quotes, have a recent bill for each meter showing the MPAN or MPRN and your annual use in kWh, plus your contract end date, your business details and the contract length you want.

• A recent bill for each supply, ideally showing annual consumption in kWh.
• Your MPAN and MPRN numbers.
• Your current supplier, end date and notice terms.
• Business details: legal and trading name, company number if limited, and how long you have traded. New businesses may be asked for a deposit.
• Your preferences: contract length, whether you want a green tariff, and how you want to pay.

Then compare quotes on unit rate, standing charge, length, commission, exit terms and any pass-through costs.

Business energy guides by sector

How a business uses energy depends heavily on what it does, so we are writing separate guides for each sector. Pubs are covered now, with more sectors on the way.

• Business energy for pubs: cellar cooling, kitchens, long opening hours, tied leases and taking over a pub.
• Utilities for pubs: energy, phones and broadband for pubs and bars in one place.

We are working on guides for more types of business, such as restaurants, cafés, hotels, care homes, salons, gyms, garages and farms. For phone lines and broadband, see our business phones and broadband guide.

Related guides

Business energy: frequently asked questions

This guide is general information, not advice. Prices and contract terms vary, so always read a contract before you sign.

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