In the complex world of business energy management, choosing the right tariff can be a pivotal decision. Two primary types of tariffs dominate the market: fixed-price tariffs and variable-price tariffs. Understanding the nuances of these options is crucial for businesses to find the best energy deal and efficiently manage their energy bills.
What is a business energy tariff?
A business energy tariff is a specific pricing plan or scheme offered by energy suppliers for commercial customers, including small and medium enterprises, large corporations, and other organizational entities. Unlike residential energy tariffs, which are designed for individual household consumption, business energy tariffs cater to the unique energy needs and consumption patterns of businesses.
Key characteristics of business energy tariffs include:
- Customized Pricing: Business energy tariffs are often customized based on the specific energy usage and demands of a business. This customization considers factors like the amount of energy used, the times at which energy is most consumed, and the length of the contract.
- Types of Tariffs: Similar to residential tariffs, business energy tariffs can be fixed or variable. A fixed tariff means the price per unit of energy (kWh) remains constant for the duration of the contract, allowing businesses to budget more effectively. On the other hand, a variable tariff fluctuates based on market prices, which can be beneficial when energy prices drop but risky if prices increase.
- Contract Length: Business energy contracts can vary in length, typically ranging from one year to several years. These contracts are usually more binding than residential ones, with stricter terms and conditions, including higher exit fees if the business decides to switch suppliers before the contract ends.
- Standing Charges and Unit Rates: Business tariffs include standing charges (a fixed daily charge for the energy supply) and unit rates (the cost per unit of energy consumed). These rates are typically negotiated based on the business’s size and consumption patterns.
What are the current energy prices?
The commercial energy prices for January 2024 are displayed in the table below as indicative averages based on a one-year fixed contract.
What different types of tariffs are available to businesses?
The market primarily offers two types of tariffs: fixed and variable. A fixed tariff locks in the price per unit of energy for a set period, typically ranging from one to three years. Conversely, a variable tariff means that the price per unit can fluctuate, usually in line with market movements and wholesale energy costs.
Fixed-Price Tariffs: Stability and Predictability
When you agree on the cost per kWh for a period of one to five years, you have a fixed-rate tariff. One of a fixed-term contract’s advantages is that it will shield you from prospective increases in energy prices. For those who wish to fix the price per unit and are aware of the current low rates for power, this is ideal.
Advantages of Choosing a Fixed Tariff
- Budgeting Ease: With a fixed tariff, businesses can predict their energy expenses accurately, aiding in more effective financial planning.
- Shield Against Market Volatility: These tariffs protect businesses from sudden increases in energy prices, providing a sense of security against market unpredictability.
Challenges of Fixed Tariffs
- Potentially Higher Initial Rates: Fixed tariffs often start with slightly higher rates compared to current variable tariffs, as suppliers price in the risk of market price changes.
- Exit Fees and Less Flexibility: Exiting a fixed contract early can incur fees. This lack of flexibility can be a drawback for businesses that might need to change their energy plans.
Variable-Price Tariffs: Flexibility and Market Alignment
The consumer is not locked into a predetermined rate per kWh with variable-rate tariffs, sometimes referred to as flexible tariffs. Rather, your tariff will change in tandem with the energy market.
As opposed to a fixed-rate tariff, you couldn’t calculate your monthly expenses since they would vary according on the market. You will be paying a considerably cheaper rate, so this is fantastic if energy costs decline. But there’s always a chance that costs may go up.
Additionally, you are not locked into a fixed-rate period as you would be with variable-rate tariffs. Should there be a notice period before departing, it will typically last for around 28 days. It is advisable to verify any expiration dates or notice durations before to accepting a contract.
Benefits of Opting for a Variable Tariff
- Opportunity for Lower Costs: If wholesale energy prices drop, so do the costs on a variable tariff, potentially leading to savings.
- No Exit Fees: These tariffs typically don’t have exit fees, allowing businesses the flexibility to switch suppliers without incurring additional costs.
Downsides of Variable Tariffs
- Uncertainty in Budgeting: The fluctuating nature of these tariffs can make it challenging for businesses to forecast energy costs accurately.
- Vulnerability to Price Spikes: Businesses are directly exposed to any increases in the wholesale energy prices, which can lead to unpredictably high energy bills.
Critical Factors in Tariff Selection
Assessing Energy Consumption Patterns
Before choosing a tariff, it’s important to understand a business’s energy consumption. A smart meter can provide detailed data on energy usage, helping businesses choose a tariff that aligns with their usage patterns.
Incorporating Renewable Energy Options
Many suppliers now offer green energy tariffs, which utilize renewable energy sources such as wind or solar. These options can be an excellent way for businesses to reduce their carbon footprint.
The Role of Price Comparison and Switching Suppliers
Price comparison websites are valuable tools for businesses to assess the energy market. They allow companies to compare various tariffs and find the best energy deal. Switching suppliers can be a straightforward process that leads to substantial savings, but businesses should be mindful of any exit fees associated with their current contracts.
Understanding Market Regulations and Price Caps
Regulatory changes, like energy price caps, can impact the cost of variable tariffs. Keeping abreast of such changes is important in making informed energy decisions.
Payment Methods and Additional Charges
Different payment methods, such as paying by direct debit, can offer discounts. Understanding all components of the tariff, including the standing charge, is crucial in assessing the overall cost implications.
How can CNG help?
Here at CNG, we believe that getting the right energy supply for your business is vital. Contact us and we can help you to find the best deal for your energy renewal and ensure that you get all the government discounts that you may be owed.