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05 August 2021
There are a number of types of energy contracts that a business could be on, with different contracts being better suited for different businesses. The type of contract you opt for depends on the type of business you are, your consumption levels and a range of other factors.
When you have a business to run, finding the best deal on your energy bills might not be a top priority. But if you aren't careful, you could end up paying more than you need to for your business gas.
Here, we'll take a closer look at the most common types of business gas energy contracts in more detail, as well as what they're made up of, to see which one your business might be best suited to.
Before we get into specific business gas contract types, it's worth explaining some of the more important elements of your gas bill, which includes:
The standing charge is the rate you pay each day for the supply to your business, no matter how much energy you use.
Not all business gas tariffs feature a standing charge. But be aware that tariffs without standing charges aren't necessarily cheaper; in many cases, the costs usually covered by a standing charge are factored into the amount charged per unit of energy.
Generally, it's more cost-effective to go with a tariff that includes a standing charge for your gas. But if your business uses a minimal amount of energy, a tariff with no standing charge could well be a strong option.
The unit rate is the amount you pay for each kilowatt hour (kWh) of gas you use.
They vary depending on a range of different factors, including the wholesale energy cost, which is why many companies opt for fixed-rate contracts since the unit rate stays the same for the entire contract.
As the name suggests, the contract end date is the point at which your current contract period ends.
Business gas contracts explained
With a fixed-rate contract, you'll be charged a fixed price per unit (kWh) that you'll pay over the course of your contract, with both the unit price and daily standing charge remaining the same.
Because of this, it's perhaps the most secure plan; you'll avoid market price increases, but you'll also miss out on falls in prices for the same reason. For businesses with uncomplicated needs looking for stability, fixed rates could well be the best option.
Click here for more information about SEFE Energy’s fixed rate gas contracts.
With a variable-rate contract, the cost paid per unit can fluctuate based on market activity. This means that businesses could see the price they pay increase or decrease throughout the course of their contract.
For businesses that aren't averse to a little risk, variable rates can pay off. So, although you may end up paying more when the market price increases, you could just as easily benefit from falling prices too.
Click here for more information about SEFE Energy’s flexible rate gas contracts.
Pass-through rates give you the option to benefit from falling third-party costs. Twice a year, the third-party costs will be analysed, and any savings will be passed onto you – brilliant for businesses keen to take advantage of fluctuations in the market.
Click here for more information about SEFE Energy’s pass-through rate gas contracts.
With a time-of-use rate, the price paid per unit will vary depending on the time of day. This means that businesses could save money if most of their energy consumption occurs during off-peak hours, for example. Keep in mind that an automated meter or smart meter is required for any business on a time of use contract.
A relatively new concept, time-of-use rates have been created to incentivise customers to use more energy at off-peak times, in order to balance demand. When demand is lower, tariffs are at cheaper rates.
A deemed rate, also known as a default rate, is what businesses without an energy contract in place will often be placed on. Such businesses will be charged the deemed rate by the property's existing gas supplier.
Until they agree on a contract, deemed tariff rates will continue to apply. And since they tend to be pricier than rates available under contract, you should move off them as soon as possible.
What makes up my bill?
On top of the wholesale cost of gas, there are a whole host of different components that form the price you pay for your business gas. These can typically be broken down into three main sections:
Very few of the below charges will appear as a separate line on an energy bill, but will instead often be a part of the unit rate or standing charge that we mentioned above.
Since gas must be moved around the country to a range of different businesses across all manner of sectors, there's a price to pay for this transport. The transportation/distribution costs on your business gas bill can be broken down into four smaller charges.
This charge is levied by National Grid and Local Distribution Zone operators and covers the cost of making capacity available for each customer. This is charged on a per kilowatt hour basis.
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This charge covers the cost of gas that has not been able to be allocated to a specific user within the system and is shared among the entire user base. This unallocated usage may be due to illegal extraction or consumption through unregistered supply points from the transportation system.
This charge covers suppliers’ risk management costs and is charged on a per kilowatt hour basis.
For more information on gas transportation charges, you'll find a range of FAQs and insights at our blog here.
The metering and management charge on your business gas bill can be broken down into four smaller charges.
It might seem strange to think, but you don't own the gas meter on the wall of your business. For that matter, neither does SEFE Energy! In reality, your gas meter is owned by a meter asset management company, which will charge you a rental fee to cover the cost of providing and maintaining the meter and any associated equipment.
Likewise, you'll have to pay a rental charge for your Automated Meter Readings. These rental charges also apply to your business if you have an AMR device or smart meter attached to your gas meter and cover the cost of providing automated readings, along with the cost of the communications system needed to conduct automated readings.
Every now and then, your meter needs to be periodically read and checked by a Meter Read Agency Operative. They'll come to your premises to check your meter readings and inspect the safety of the meter itself. The charge on your bill covers these instances and is charged annually on a fixed-sum basis.
The majority of energy contracts that were arranged by a broker will include an energy broker fee in the price you pay per kWh for gas.
The broker tends to set this in agreement with the energy supplier, who can allow brokers to set very high levels of commission. This is usually charged on a per-unit basis, but sometimes standing charges will be used when dealing with SMEs.
The broker commission should be clearly and accurately outlined within contracts by the brokers, so it is specified how much is going on the energy and how much is going to commission.
The supplier margin, meanwhile, is the amount your supplier makes from your business, and covers marketing, acquisition, and admin costs, as well as net profit.
Finally, your business gas bill will contain two charges from the government.
Designed to encourage more energy-efficient operations and reduce overall emissions, the Climate Change Levy is an environmental tax charged on the energy that businesses use. The CCL applies to businesses in the industrial, public services, commercial, and agricultural sectors, and is charged on 'taxable commodities' for heating, lighting, and power purposes.
Businesses will be charged on a per kilowatt-hour basis. For more information, check out our Climate Change Levy guide here.
VAT will be charged at the standard rate, which is currently 20%. However, a reduced rate applies to businesses that use less than 4,397 kWh per month and some organisations, such as certain charities, will qualify for an exemption.
If your business energy contract is coming up for renewal, why not make the switch to SEFE Energy? With our simple 5-step switching process, you could be just a few clicks away from your next energy deal.
And remember, regulatory compliance is an increasingly important component of the ever-changing energy landscape.
SEFE Energy is a leading and award-winning business energy supplier, helping thousands of businesses to manage their gas and electricity contracts. To find out more about what we can offer your business, visit the homepage or call us today on 0161 837 3390.