In a typical business energy contract, you’ll agree that your property will be supplied with electricity or gas in exchange for the following:
- A fixed daily standing charge, and
- A unit price per kWh of energy supplied
Fixed energy contracts usually last between 1 and 3 years. They are great because they provide your business with certainty over the cost of energy and protect you against any unexpected price rises.
However, sometimes your business energy supplier will write to you to explain that they are raising your agreed rate per kWh.
This can come as quite a shock to business owners who think they are protected against price rises. This article will explain why a fixed business energy rate can sometimes change.
The reasons the unit rate of business energy can change
In a fixed business energy contract, your business is fixing the wholesale price of energy. This means if the underlying cost of energy goes up, your business will continue to pay the same rate per kWh.
The wholesale cost of energy is the biggest element of a commercial energy bill; However, other costs are included within your business energy supply that can change. A typical business energy tariff will include something like the following contractual term:
Your unit rates will not change during the fixed period unless any cost in connection with processing, distributing, transporting, and selling your supply is increased.
In plain English, if any costs other than the wholesale cost of energy (generally known as non-commodity costs) go up, these will be passed onto your business with a higher unit rate.
What are non-commodity business energy costs?
Here’s a summary of the non-commodity costs that can increase, impacting your business energy tariff:
Government imposed charges – The government dictates these charges directly impacting a business energy bill: VAT on business energy, the climate change levy, and the green gas levy. If the government increases any of these, then your rates will rise.
Energy distribution costs – Moving electricity and gas from where it’s generated/imported to where your business uses it comes at a cost. There are various networks used as part of this process; here’s a summary:
The fees of each network are carefully regulated but can increase. An increase in energy distribution charges will be passed as an increase in your unit rate per kWh of electricity or gas.
Supply charges – Business energy suppliers incur the cost of maintaining the business energy connection of your property to the local grid and renting your business energy meter. Any increase in energy supply charges will also affect your agreed fixed energy rate.
What can I do about fixing my business energy rates?
Unfortunately, there’s no easy way to completely fix the non-commodity elements of your business energy bills. However, these costs are usually stable, so significant increases impacting your current tariff are unlikely.
The wholesale element of your business energy bills is the highest cost to fix. Signing up for a fixed energy tariff will protect your business against volatility in the energy market.
The easiest way to find the best commercial energy rates is to collect quotes from as many suppliers as possible with our business energy comparison services: