Energy contracts can differ massively depending on if you’re a domestic or business energy customer, and this can make organising your business’s gas and electricity supply much more difficult if you are not familiar with commercial energy contracts.
In this guide, we explain the differences between business energy and domestic energy contracts to help you understand why the process of organising both contracts is so dissimilar.
CONTRACT LENGTH
Contract lengths between domestic and business customers can vary greatly. Typically, domestic customers are offered gas and electricity contracts that last between 12 and 24 months. However, business energy contracts can be much more long-term and run over 36+ months.
Businesses also find it much harder to cancel energy contracts, facing high fees from suppliers when trying to terminate contracts early. Domestic customers may also be charged when requesting an early termination, however, they will not be as high as commercial cancellation charges.
Household energy contracts are more frequently allowed to roll over month to month after the agreed time period has finished, whereas business customers are usually placed onto Out-of-Contract rates if they do not renew or switch contracts. This can be incredibly costly as Out-of-Contract rates are much more expensive than contracted energy rates.
PRICES
Prices between domestic and business customers differ on several levels. Firstly, price fluctuation is much more common for commercial customers, with rates increasing and decreasing daily as driven by the market. Whereas domestic customers typically face price changes on an annual basis. This difference influences the choice of contract type for a lot of businesses, with many choosing fixed-rate energy contracts over variable-price contracts so that they can budget more accurately and are not hit if gas and electricity prices dramatically increase. Price fluctuation can make the process of organising business gas and electricity tariffs more confusing as energy quotes soon expire as prices increase and decrease. This is why we advise customers to act quickly when comparing quotes so they avoid the disappointment of losing deals they were happy with before prices changed.
Prices per unit of gas and electricity can appear to be cheaper for businesses than for domestic customers. This is because suppliers are able to sell much higher volumes of units to businesses as they usually consume more gas and electricity than an average household. Businesses can also be offered energy rates tailored to their needs. Domestic customers are not offered tailored rates and are charged the same rates as the rest of their region.
VAT is also different in business energy contracts compared to domestic contracts. Businesses are required to pay 20% VAT on their energy tariffs, as well as a Climate Change Levy (CCL). Domestic customers only pay a reduced amount of 5% VAT on their gas and electricity bills and are not required to pay a CCL.
PREDICTING BUSINESS ENERGY CONSUMPTION
Suppliers find it more difficult to predict business energy consumption compared to domestic users. Business customers will use gas and electricity at different times during the day, whereas domestic customers’ usage is much easier to predict due to typical levels of usage throughout the day. This is why suppliers offer separate rates to domestic and commercial customers as their behaviour is usually very different.
However, with the introduction of half-hourly metering, electricity suppliers can accurately monitor how much energy their customers consume. This will make negotiating future contracts much easier as suppliers can receive a clear picture of how much electricity potential customers consume.
COOLING OFF PERIODS
Most people are familiar with cooling-off periods offered by domestic energy suppliers. A business will set a period within which a customer has the option to cancel their contract if they no longer wish to continue with it. Business customers are not offered this option by suppliers and must be absolutely certain that they want to enter into a contract as they are considered to be completely capable of understanding what they have agreed to with their chosen energy suppliers.