Which supplier is offering the cheapest business electricity prices in 2024-25?

Businesses rely heavily on electricity, and without proper cost control, energy bills can significantly impact profits. To help small businesses reduce energy costs, this guide explores how to find the cheapest business electricity tariffs and how using a provider to compare business electricity can help manage expenses.

Understanding Deemed and Out-of-Contract Rates

What Are Deemed and Out-of-Contract Rates?

Many electricity suppliers do not publish their full price list, but they do offer out-of-contract and deemed rates, which are the worst-case scenarios for customers who have not arranged a contract.

• Deemed Rates: These are charged when your premises use electricity without an active contract in place. This often happens when a business moves to new premises and fails to arrange a contract. The supplier charges higher rates to mitigate risk since they lack knowledge of your usage patterns.

• Out-of-Contract Rates: These apply when your existing electricity contract ends without a renewal or new contract being signed. Some suppliers even place customers on out-of-contract rates after unpaid bills. These rates are often much higher than standard tariffs.

How to Avoid Deemed and Out-of-Contract Rates

To avoid these inflated rates, ensure you arrange a new electricity contract before moving to new premises or before your existing contract expires. Some suppliers offer auto-renewal contracts, preventing your business from switching to out-of-contract rates.

Choosing Between Fixed and Variable Rate Electricity Tariffs

Fixed-Rate Electricity Tariffs

A fixed-rate tariff locks in the price per kWh for a set period (usually 1-3 years, though some offer up to 5 years).

• Pros: Fixed rates offer predictability, ensuring your costs won’t increase even if electricity prices rise.

• Cons: Fixed-rate plans are often more expensive than the cheapest variable-rate tariffs. Additionally, they may not include additional charges like DUoS and TUoS (Transmission Use of System) charges.

Variable-Rate Electricity Tariffs

Variable-rate plans tend to be cheaper in the short term compared to fixed-rate plans, but they come with risks.

• Pros: Lower prices at the outset, with flexibility to switch to a new contract if needed.

• Cons: If electricity prices rise, your costs will increase as well, with no protection from price hikes.

Which Option is Best for Your Business?

There is no one-size-fits-all solution. If your business can’t handle sudden price increases, a fixed-rate contract may be the best choice. However, if you’re looking for cheaper rates in the short term and are prepared for potential fluctuations, a variable-rate plan may suit your needs.

How to Find the Cheapest Electricity Rates for Your Business

Saving with a New Contract

If you're currently on deemed rates, switching to a new electricity contract could save your business up to 50% per kWh. In general:

• Fixed-rate contracts: 20-30% cheaper than deemed rate contracts.

• Variable-rate contracts: Often even cheaper than fixed rates.

It’s important to also compare standing charges, as they can impact your overall costs. A quick comparison could lower your energy bills by as much as 60%.

 Which Is the Cheapest Electricity Supplier?

With over 50 electricity suppliers in the UK, there’s no single answer to which is the cheapest. Prices depend on your business’s energy consumption and location. Some suppliers may offer cheaper rates in specific regions.

Energy Prices Across the UK

Electricity prices vary by region due to distribution network operators. Suppliers don’t own the infrastructure but sell energy through it, and prices can differ based on your location. For instance, electricity may be cheaper in London than in Northern Scotland.

Small and Micro Businesses

Micro-Business Benefits

Most small UK businesses are considered micro-businesses, which makes it easier to switch suppliers. Regulations from Ofgem allow micro-businesses to terminate contracts at any time. Suppliers must also clearly state the end date and notice period on all electricity bills.

Common Questions About Small Business Electricity

1. Is Domestic Electricity Cheaper Than Business Electricity?

Domestic electricity typically has price caps, whereas business electricity doesn't, leading to higher costs. However, large businesses using more energy may benefit from cheaper rates than domestic customers.

2. Do I Need a Business Electricity Contract if I Work From Home?

If your business uses less than 40% of the electricity consumed in your home, you do not need a business electricity contract.

3. What Is the VAT Rate on Business Electricity?

Most businesses are charged 20% VAT, though some exceptions apply. For example, businesses based at home, charities, and not-for-profit businesses are charged only 5%.

4. How Much Does Electricity Cost for My Business?

The cost depends on usage, but the formula to calculate your annual electricity cost is:
Energy Used x Price per kWh + Daily Standing Charge = Total Annual Electricity Cost

Conclusion: Take Control of Your Energy Costs

By comparing electricity tariffs and providers, businesses can significantly reduce their energy bills. Whether opting for a fixed or variable rate plan, it's important to regularly reassess your options to ensure your business gets the best deal.