Understanding the energy market for new small businesses

There’s enough to think about when building a startup without having to become an energy expert! But whether you’re setting up a consultancy in a small office space, or founding an energy-intensive micro business, it pays to understand energy.  As a startup, you need to make sure you’re getting the small business energy rates you deserve.

Read our small business energy guide to understand how the energy market works, and to get the best small business energy quotes to help your new business grow.

What’s different about energy for small businesses?

Small business energy customers can shop around and buy energy from any number of companies offering fixed or flexible rates – in the same way as you would for your home. 

But there are some key differences between small business and residential energy contracts, which you need to be aware of such as they can be fixed for longer periods than domestic contracts. See the table below for the key differences:

Differences between domestic and business energy

Business energy is generally taxed at 20%. The lower VAT rate of 5% is for businesses that use low amounts of power and this ‘de minimis’ level (see box) is quite a high bar for a small business to reach.

How much is de minimis energy use?

The de minimis levels are set at 33 kilowatt hours (kWh) of electricity, or 145kWh of gas per day.^[1] To understand this in the context of your home energy use, that’s about three times Ofgem’s average figures for powering a 4-5 bedroom home.^[2]

Business energy contracts are also subject to the Climate Change Levy (CCL), an environmental tax designed to encourage firms to use less power. This is charged as a relatively small levy on each kilowatt hour of gas or electricity you use. It’s currently 0.775p per kWh,^[3] but again, there’s an exemption for businesses falling within the de minimis limits.^[4]

Do I need a small business energy tariff?

In short, ‘yes’. You need to take out a small business energy tariff if you’re buying energy for a business premises, such as a shop, office or factory.

What business energy contracts are available?

Just as with a domestic tariff, small business energy tariffs usually comprise a daily standing charge, along with a price for every unit of gas or electricity you use. They are usually one of four types:

Fixed-rate tariff – The standing charge and unit rate are fixed for the duration of the contract. This is often a good choice for small businesses that want the security of predictable charges. Most fixed rate tariffs come with an exit fee. 

Variable-rate tariff – The unit rate is linked to the underlying energy market, so it can go up or down during your contract. With a variable tariff you can leave at anytime without an exit fee.

Time-of-use tariff – These offer cheaper rates for electricity used during off-peak hours. They may offer savings for small businesses that can shift their energy use away from times of high demand.

Zero standing charge tariff – These tariffs don’t have a standing charge. But be aware that the unit rate is often higher as a result. Learn more in this film: Should I switch to a zero standing charge tariff for my small business?

How do I get the best small business energy contract?

To get the best startup energy contract, you’ll need to contact some energy companies directly. This is usually easy, and can typically be done online – with EDF you can get a small business energy quote in just 60 seconds!

You may also want to speak to a broker, who’ll work with multiple energy companies to try and find you the cheapest small business energy. However, they may not have access to all the lowest rates – EDF, for example, always offers its lowest prices to its direct customers.

Business energy quotes are based on the amount of power your business might expect to use, so it’s good to have an idea of this before you start speaking to suppliers or brokers or get your quote online. It’s always handy to have your company registration number to hand as you'll need this for the majority of quotes. If you go via a broker you’ll likely be asked questions about your business’ income and number of employees you have too.

Working out your energy usage can be tricky for startups – particularly so if you’re about to invest in energy-efficient or power-hungry equipment that will change your usage. But you’ll get an idea of how much energy you use by looking at your most recent invoices. Or, if your business is very new, track your electricity and gas use on a week by week basis to get an idea. You might also try to find out how much energy similar businesses are using, and how much they’re paying for it.

Many small business energy contracts have a renewal window, if you’re on a fixed contract that opens up to 90 days before your contract ends. You can use this to discuss a new fixed tariff with your supplier – these prices can be higher or lower than your current contract depending on the wholesale prices at the time. Remember your new rates won’t apply until the new contract term begins.

Is there a cooling off period when you take out a new contract? 

While there’s a renewal window for small businesses during which you can switch to a new energy supplier, there’s no mandatory cooling-off period when your new contract begins, as there is for domestic customers. Some suppliers might offer one as part of their terms and conditions, but make sure you’re completely comfortable with a contract before you sign the paperwork, to avoid paying any penalties if you leave early.

How do I spend less on small business energy?

Even startups can use a lot of power, so energy can make up a significant chunk of their operating costs. While EDF can offer you brilliant small business energy rates to help you grow, you can always lower your costs further by using less energy. If you’re a totally new business we recommend starting as you mean to go on – here’s nine tips to help you cut your small business energy bill so you can do just that. 

You can use your invoices to see your business’ overall energy use, but carrying out a more thorough energy audit will help you understand exactly where you’re using the power. According to the International Energy Agency,^[1] audits provide average potential energy savings of 18%. 

An energy audit goes beyond easy wins – such as cutting down on heating or lighting – to target the high-energy activities and equipment you could be using more efficiently. You can find impartial guidance on energy audits through organisations like Business Energy Scotland and the Federation of Small Business.

Of course, you could lower your emissions further by installing solar panels, or other microgeneration schemes at your startup. The electricity these generate will lower the amount you need to take from the grid, reducing your energy invoices and giving you the cash to grow your small business..

At times your solar panels or wind turbines may even produce more energy than your business needs. Just like domestic customers, businesses can export this excess power into the grid, getting paid for it via the Smart Export Guarantee (SEG) scheme.^[2]

How do I choose an energy supplier for my small business?

It’s important to look for good value when finding the best small business energy supplier, but it shouldn’t be your only focus. 

Business owners are busy enough without needing to chase disinterested energy companies, so look for a supplier that’s easy to get hold of, and who offers good customer service. EDF has teams of dedicated small business energy specialists – it’s one of the reasons why we’re rated Excellent on Trustpilot.

It’s also important to avoid suppliers who might leave you in the lurch. Businesses need reliable energy, and low hassle. Choosing a trusted name gives you that reassurance they’re not going to go bust anytime soon. 

Look also for a supplier with good account management tools – like EDF’s easy-to-use MyAccount system. You don’t want to waste hours on hold when you could simply be managing your business energy account online, at a time that suits you.

Are there any small business energy grants?

While consumers are protected from high prices by the Ofgem price cap, which limits the unit rate they pay, this doesn’t apply to business energy customers. At the height of the energy crisis, small businesses could benefit from the Energy Bill Relief Scheme,^[1] and later the Energy Bill Discount Scheme.^[2] But both schemes have now ended, and there are currently no small business energy grants available.

What if I have more than one business premises?

If your new business turns out to be a smash hit, it won’t be long before you’ve outgrown your early set-up! As a small business owner, you can take out multiple small business energy contracts for your different premises and make sure to get the best deal for the latest addition to your growing property portfolio. 

Through EDF’s online account management system, MyAccount, you can manage the energy for all your different premises through the one system. You’ll also receive your invoices – and meter reading reminders if you don’t have a smart meter – at the same time in the monthly calendar. So you can stay on top of your energy invoices, even while your business is expanding.

It takes determination to turn a startup into a thriving business, but choosing energy suppliers shouldn’t be hard work. It takes less than 60 seconds to get a quote from EDF, so why not switch to us today?