Business Energy Tariffs Explained

Understanding Business Energy Tariffs is more than just knowing how much you pay per kilowatt-hour. For UK businesses, especially those without the protection of domestic price caps, choosing the right tariff can lead to significant cost savings and choosing the wrong one can quietly eat away at profits month after month.

Whether you’re a new business owner looking to sign your first contract or a seasoned professional trying to lower expenses, this guide walks you through everything you need to know. We’ll explain each type of Business Energy Tariff, how pricing is determined, how to switch, and how to avoid common pitfalls, all in clear, jargon-free terms.

Why Business Energy Tariffs Matter 

In the UK, commercial energy users face a more complex and less regulated market compared to households. Your contract terms, your energy consumption, and even your payment history can all impact the unit price you pay.

A poorly chosen tariff might look okay on paper, but can lead to:

• Higher than necessary unit rates
• Locked-in terms with exit penalties
• No room to benefit from falling market prices
• Loss of negotiating power at renewal

When energy is one of your highest overheads, as it often is in hospitality, manufacturing, or retail, these decisions have real financial consequences.

Key differences from domestic tariffs 

Types of Business Energy Tariffs 

There are five primary types of Business Energy Tariffs, each designed to meet different operational needs. The right choice depends on several factors, such as the size of your business, your typical energy consumption patterns, how much pricing risk you're willing to take on, and whether sustainability is a core part of your brand strategy or compliance goals.

1. Fixed-Rate Tariff 

What it is: Your price per kWh is locked in for the entire contract term, typically 12, 24, or 36 months.

Best for: Businesses that want predictability and budget control.

Pros:

• Shielded from market price increases
• Easier financial planning and cash flow forecasting
• Often competitively priced when locked in at the right time

Cons:

• Cannot take advantage of market price drops
• Exit fees may apply for early termination

💡Tip: Fixed tariffs are especially helpful during times of energy price volatility.

2. Variable-Rate Tariff 

What it is: Your unit rate varies depending on market fluctuations.

Best for: Businesses comfortable with risk and those that want short-term flexibility.

Pros:

• Benefit from falling prices
• Sometimes no exit fees

Cons:

• Monthly bills can vary significantly
• Not ideal during periods of inflation or global energy crises

⚠️Warning: If wholesale energy spikes, you could face dramatic bill increases with no warning.

3. Deemed or Out-of-Contract Tariff 

What it is: Automatically applied if your contract expires and no new agreement is in place.

Best for: No one, this is an emergency measure.

Cons:

• Typically 80–100% higher than fixed tariffs
• No ability to negotiate or lock in better rates
• Applied to new occupants of a site who haven’t yet agreed on a contract

🔎Always review your contract end date and set reminders at least 3–6 months in advance.

4. Pass-Through Tariff 

What it is: You pay a fixed fee for wholesale energy, while other costs (network charges, taxes, green levies) are passed through at market cost.

Best for: Larger businesses that understand the components of their bill.

Pros:

• Full transparency of costs
• Often cheaper than bundled fixed tariffs if managed well

Cons:

• Complex bills and price fluctuations
• Requires more involvement and risk management

🧠Pass-through tariffs can reduce your costs if you’re energy-savvy, but they require vigilance.

5. Green Energy Tariff

What it is: Electricity or gas supply matched with renewable generation, backed by certificates like REGOs.

Best for: Companies with net zero goals or ESG initiatives.

Pros:

• Enhances your environmental credentials
• May help you meet Scope 2 reporting requirements

Cons:

• Premiums may apply (though costs are narrowing)
• The quality of "green" credentials can vary, as with REGO certificates

🌱Green tariffs are now more accessible than ever and don’t always mean higher costs.

How Business Energy Tariffs Are Priced 

Your quoted rate isn’t just plucked from thin air; it’s the result of multiple variables working together. Energy suppliers assess several factors unique to your business before presenting a final rate. Here’s what they typically take into account:

Factors influencing your price 

• Contract length – Longer contracts can offer better rates
• Energy usage – High users may get bulk pricing
• Meter type – HH meters often allow for more tailored pricing
• Credit profile – Affects trust and contract terms
• Supply region – Distribution charges vary by location
• Time of quote – Rates can change weekly or even daily

Real-World Example: Tariff Comparison Case Study 

To show the real impact of switching Business Energy Tariffs, here’s a practical example from a small bakery in Birmingham.

• Business Type: Independent bakery with a small kitchen and front-of-house operation
• Previous Tariff: Deemed rate at 42p per kWh (out-of-contract)
• Switched To: 2-year fixed-rate tariff at 26p per kWh
• Annual Energy Usage: 18,000 kWh

After making the switch, the business saw an annual saving of £2,880, which works out to roughly £240 in savings per month. For a small business operating on tight margins, that’s the equivalent of covering a full week’s rent or hiring part-time help just by securing a better energy deal.

The Impact of Half-Hourly (HH) Metering on Tariffs 

Half-hourly (HH) metering is now mandatory for many medium to large UK businesses and opens the door to more accurate, data-driven billing. By recording energy usage every 30 minutes, HH meters provide a detailed view of consumption patterns, allowing suppliers to offer more tailored pricing and helping businesses identify opportunities to reduce waste and lower costs.

Why it matters 

• Offers detailed insights into your energy patterns
• Enables access to bespoke Business Energy Tariffs
• Required under Ofgem’s PF272 for certain businesses

If your annual demand exceeds 100,000 kWh, you likely already have an HH meter or need one.

Tariff Negotiation Tips for SMEs

Small businesses often have more negotiating power than they realise, especially when armed with the right information. By understanding their energy usage, comparing offers, and knowing when to engage with suppliers, even smaller operations can secure competitive Business Energy Tariffs that rival those of larger firms.

Insider tips 

• Never accept your first renewal quote
• Compare brokers – they vary in fees and supplier access
• Negotiate contract extras – like the installation of commercial smart meters or cashback
• Time your switch – wholesale markets dip at different times

📆Pro tip: The best deals are often available mid-year when demand is lower.

How Tariffs Align with Net Zero Goals 

Switching to the right Business Energy Tariff can play a key role in reducing your business’s carbon footprint, often without the need for costly infrastructure upgrades or major investments. By simply opting for a green or REGO-backed tariff, your business can support renewable energy initiatives and demonstrate a genuine commitment to sustainability.

Net zero strategies 

• Choose suppliers that reinvest in renewables
• Ensure you’re receiving genuine REGO-backed energy
• Consider carbon offset tariffs for gas
• Publicise your green switch in CSR and brand material

How to Switch Your Business Energy Tariff 

Switching to a better only takes a few minutes, but the potential savings can be substantial, often amounting to thousands of pounds over the course of a contract. With the right timing and comparison strategy, a quick decision today could lead to major financial relief tomorrow.

Switching checklist 

✅ Check your contract end date
✅ Gather your last 3–6 months of bills
✅ Use an impartial broker or comparison tool
✅ Review all terms and conditions
✅ Book installation or meter upgrades if needed
✅ Confirm cancellation with previous supplier

Glossary: Business Energy Terms Explained 

• kWh – Kilowatt-hour, the unit of energy you’re billed for
• Standing charge – Daily fee for energy supply
• REGO – Prove your electricity comes from renewable sources
• Deemed rate – High-rate tariff applied without a contract
• HH meter – Measures usage in 30-minute intervals
• Pass-through – A Tariff where costs like taxes are billed separately

Conclusion 

Choosing the right Business Energy Tariff isn’t just about cutting costs; it’s a smart strategic move that can save your business thousands of pounds annually while giving you tighter control over your financial planning. Whether your goal is to reduce overheads, align with environmental targets, or simply avoid unwelcome billing surprises, having a clear understanding of how the energy market works gives you a real competitive edge.

Don’t let energy be the forgotten line on your expense sheet. Treat your energy contract with the same level of attention and scrutiny as any other key business decision and reap the long-term benefits of lower costs, improved sustainability, and smarter operations.

Summary Points 

• UK businesses aren’t protected by energy price caps
• Fixed-rate tariffs offer cost stability; variable ones offer flexibility
• Deemed tariffs are costly and should be avoided
• HH metering enables data-led savings and tariff accuracy
• Choosing green Business Energy Tariffs can boost your brand image

FAQ: Business Energy Tariffs 

Q1: What’s the best tariff for a small business?
A1: Fixed-rate tariffs offer the most peace of mind, but it depends on your energy usage and risk tolerance.

Q2: How long are business energy contracts?
A2: Typical contracts range from 1 to 3 years, but some go up to 5.

Q3: Can I cancel a business energy contract early?
A3: Only if your contract allows it, most charge early exit fees.

Q4: How do I find out what tariff I’m on?
A4: Check your energy bill or call your supplier. It will show the tariff name and type.

Q5: Are all green tariffs the same?
A5: No. Some just offset emissions; others are fully backed by renewable generation. Look for REGO certification.