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Is electricity cheaper for businesses?

It’s true that what businesses pay for their electricity is different than it is for household consumers. But do businesses actually pay less for the energy they use? 

In this guide, we’ll examine the factors that influence how much businesses and domestic pay for their electricity to see whether or not commercial users get a better deal on their electricity bills — and if not, what you can do to change that.

 

How much electricity does a commercial building use compared with a house?

According to the Chartered Institution of Building Services Engineers (CIBSE), a typical office pays about £6.50 in energy costs per square meter of office space each year. 

The current price per kilowatt-hour (kWh) of electricity used in the UK is 14.4p on average, which means commercial buildings use around 46 kWh of electricity per square meter. 

The average home in the UK today is around 68 square meters in size and uses about 3,100 kWh per annum. That means homes use about 46 kWh per square meter each year, which is the same as a commercial building.

 

What consumes the most electricity in commercial buildings compared with homes?

HVAC and lighting are the main drivers of electricity use in commercial buildings. 

HVAC stands for ‘Heating, Ventilation and Air Conditioning’. It is the primary technology used in commercial buildings to ensure a comfortable working temperature for staff at all times. HVAC systems can quickly use up a lot of electricity, especially because they’re often running all day. 

In UK homes, on the other hand, utility appliances like dryers and combi boilers typically consume the most electricity.

Though dryers may only run for an hour or so at any given time, they use far more electricity than almost anything else in the house. For example, a dryer uses about 2.8 kilowatts of electricity per hour, whereas a television will only use 0.2 kilowatts per hour.

Homeowners facing high electricity bills can dramatically cut them down simply by keeping those power-hungry appliances switched off. Businesses, however, don’t often have the same luxury. HVAC systems in offices might be energy-intensive but they’re also integral to ensuring staff comfort and productivity.

 

Do businesses pay less per kilowatt-hour?

When it comes to unit price, businesses usually pay less per kWh of electricity than homes do. This is especially true for large businesses; the larger the business, the lower the unit rate they typically receive. 

Here’s how the price per kilowatt-hour that businesses pay scales with size.

 

Business size

Number of employees

Average yearly usage (kWh)

Unit rate (price per kWh)

Micro-business

0-9

10,000

13.21p

Small business

10-49

20,000

13.11p

Medium business

50-250

40,000

13.11p

 

You can learn more by reading our definitive guide to kWh pricing for businesses.

In comparison, homes pay 14.4p per kWh on average. That means that medium-size businesses are paying around 5% less per unit of electricity than domestic users.

 

Do businesses pay more VAT on electricity than homes?

While businesses might pay less per unit of energy they use, they do pay substantially more VAT on their electricity.

Home energy users pay 5% VAT on any electricity they use. Businesses, on the other hand, usually have to pay 20%. The exception to this rule is that some business types — like charities and not-for-profits — have a special exemption, and can pay the 5% rate instead.

Businesses also have to pay the Climate Change Levy (CCL), which is a tax on any non-renewable energy they use. Since April 2019, that cost has risen to 0.847 pence per kWh.

You can learn more about the Climate Change Levy here.

 

Is electricity cheaper at night?

For household consumers, electricity is only cheaper at night on an Economy 7 or Economy 10 tariff. These tariffs will charge less per unit of electricity you use during off-peak hours — typically between 11 pm and 6 am. 

For most businesses, electricity costs the same whether it’s used during the day or at night. However, large businesses — like industrial-scale users — may be on what’s known as an ‘Interruptible Contract’, in which businesses get cheaper rates in exchange for granting the National Grid the power to cut off their supply during peak times.

On this kind of contract, businesses that avoid using electricity during periods of peak demand will pay less for their energy. Typically, that means waiting until night to run energy-intensive operations. See our guide to business energy for large users to find out more.

 

The verdict

While it’s true that businesses typically pay less per kWh than homes do, they’re likely to pay more overall.

The main reason commercial users pay more is that they face more additional fees. Business users pay much more VAT on their electricity and the Climate Change Levy on top of that. And though the average office might use the same electricity per square meter as households do, the appliances they use are often central to the success of their business, meaning they have fewer opportunities to simply cut their usage.


However, businesses can still see significant savings on the price of their electricity simply by switching their tariff or supplier. And at Love Energy Savings, you can do just that. Simply enter your postcode here to see quotes for dozens of different suppliers and see how much you could save today.