When you start a business, there are a lot of things to think about. One of those things is your energy contract. Many small businesses don’t think about their energy contract and the effect it can have on their business.
The type of business you are running and the size of your operation will have a direct effect on what type of energy contract you will need. While larger businesses may have more options and be able to negotiate a better deal, micro-businesses may be limited in their choices depending on their size and the energy they need. In this article, we’ll run down how being a micro business or small business will affect your energy deal or supplier, and how these types of business energy contracts differ to contracts for big companies.
What is a micro business?
In the UK, a micro business is a small enterprise that has fewer than 10 employees and an annual turnover of less than £2 million. Micro businesses are a significant part of the UK economy and account for a large proportion of small and medium-sized enterprises (SMEs). They are typically defined as small, independent businesses that operate on a local or regional level and are often owned and operated by a single individual or a small group of individuals.
Micro businesses often operate in sectors such as retail, food and drink, professional services, and creative industries. They may be sole traders, partnerships, or limited companies.
These types of businesses often face unique challenges and may have limited resources compared to larger businesses. They may have difficulty accessing finance, marketing their products or services, and complying with regulations. However, they also have the potential to be highly agile and adaptable, and many are able to take advantage of opportunities and achieve success despite their size.
How do micro-business energy contracts differ from other business contracts?
Energy regulator Ofgem modified the regulations for micro business energy contracts to make them more equivalent to household energy agreements. The primary distinctions between micro business energy contracts and other enterprise energy agreements are listed below.
Notice Period
The switching window for most SMEs’ existing energy contracts must first pass before they may contemplate moving to a new one. This is a window of time, around six months before a contract expires, when companies can shop around and compare business energy contracts, either with their present supplier or a different one.
If you own a micro business, this isn’t true. Suppliers are no longer allowed to demand a minimum 30-day notice period before you end a micro business energy contract. This implies that micro business owners may terminate a contract at any point throughout the length of the agreement.
Back Billing
You may receive surprisingly large energy bills if your supplier has been erroneously invoicing you. Being billed too much means you’re wasting money each month while being billed too little means you might be faced with a large payment to make up the deficit.
Energy companies should only be able to backdate your payments for the last 12 months, according to a recommendation from Ofgem, to assist consumers against unforeseen high and even debilitating energy costs. You should still provide your energy supplier periodic measurements, however, to ensure that your company is billed appropriately and to help reduce the danger of spending too much or too little for your gas and electricity.
Unique Products and Services
Micro businesses also benefit from having access to unique services and products that larger businesses may not have access to. This includes access to renewable energy sources, such as wind and solar, as well as energy efficiency services and green tariff options. This can be a great benefit for businesses looking to reduce their carbon footprint and save money on their energy bills.
Transparent Contracts
Finally, micro-business energy contracts are often more transparent than other contracts. This means that businesses can easily understand exactly what they are getting for their money, and can make informed decisions about their energy provider. This transparency also helps to ensure that businesses receive the best value for their money.
Your gas and electricity suppliers must be totally upfront about contract end dates and notice periods on bills and statements if you’ve signed up for fixed-term energy contracts. This is intended to provide additional transparency so that you are aware of the precise time you must switch in order to prevent getting rolled onto an evergreen agreement with a less advantageous pricing.
When your switching window opens if you are on a regular business energy agreement, your supplier is required to contact you and will often present you with a renewal offering. It makes sense to compare businesses’ prices before you commit to renewing because it’s doubtful that the renewal rates provided by your current supplier would be among the most affordable on the market.
How do business energy contracts differ from domestic?
Domestic energy contracts are designed for households and are typically shorter in length than business energy contracts. Domestic contracts usually last between one and three years and are subject to price caps and fixed costs. This means that the price you pay per unit of energy will not change during the contract.
Business energy contracts, on the other hand, are generally much more flexible than domestic contracts. These contracts can range from one to five years, and often have no price caps or fixed costs. This means that you may be able to negotiate a lower rate for your energy usage and that the rate can change depending on market conditions.
Another key difference between domestic and business energy contracts is the size of the contract. Domestic contracts are designed for smaller households, while business contracts can cover larger amounts of energy supply. This is important to consider if you plan on expanding your business and will need more energy.
Finally, business energy contracts can also include additional services. These services can include energy-efficient upgrades and renewable energy sources. These upgrades and renewable sources can help you save money on your energy bills in the long run.
What changes have been introduced recently to micro-business energy contracts?
You will already be subject to different laws and safeguards than other companies because of your status as a micro business. nonetheless, they will be increased as of this year’s first of October, when the following amendments take effect:
- Greater transparency – You’ll be given all the key information about the terms of your energy deal, including any third-party costs when you enter into and exit from a contract. This includes any broker fees.
- No more termination notice needed – Suppliers will no longer be able to insist on a 30-day notice period to end a micro business energy contract. The only exception is if a commercial deal expires, and the business is put on an ‘evergreen’ or ‘rollover’ tariff (read on to find out more about this)
- Better information on the market and your rights – Citizens Advice will offer micro business owners access to up-to-date guidance and advice on consumer rights and how the market operates.
What types of energy tariffs are offered to micro businesses?
There are several types of energy tariffs that are typically offered to micro businesses. These include:
- Time-of-use tariffs, which charge different rates for energy usage at different times of the day or week.
- Demand tariffs, which charge based on the maximum amount of energy a business uses at any given time.
- Flat-rate tariffs, which charge a fixed rate for energy usage.
- Pass-through tariffs, which pass on wholesale energy costs directly to the customer.
- Renewable energy tariffs, which guarantee a certain percentage of the energy supplied comes from renewable sources.
How can my microbusiness secure the best business energy deal?
There are several steps your micro business can take to secure the best business energy deal:
- Compare different tariffs and suppliers: Compare different tariffs offered by different suppliers to find the best deal for your business. Look at the different rates, fees, and contract terms that are offered.
- Understand your energy usage: Understand your energy usage patterns and how they may change over time. This will help you select a tariff that best suits your business needs.
- Ask for quotes: Contact different suppliers and ask for quotes for different tariffs. This will give you a good idea of the costs involved and help you compare different offers.
- Negotiate: Once you have received quotes, use them to negotiate with suppliers for a better deal.
- Keep an eye out for promotions and discounts: Suppliers often offer promotions and discounts to attract new customers. Keep an eye out for such offers and take advantage of them when they are available.
- Review your contract regularly: Review your contract regularly and make sure it still meets your business’s energy needs. Consider switching to another supplier if you find a better deal.
- Check if your business is eligible for any Government grants or incentives.