Whether you’re setting up a business or are looking at ways to save money in your existing venture, it’s important to shop around for your business energy.
One option available to business owners is to sign up to a time-of-use tariff, which can save you money if you use electricity when it is at its cheapest to buy.
Here we explain what time-of-use tariffs are and weigh up their pros and cons, so you can decide whether they are the best choice for you.
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What is a time-of-use tariff?
Energy usually costs more on the wholesale market at peak times – it’s a simple case of supply and demand. So energy suppliers tend to pay more to obtain energy during the day, which is typically the most expensive time as demand is high.
The flipside of this coin is that energy costs less outside the peak hours, which is why some energy providers offer time-of-use tariffs that charge lower rates to businesses for the electricity they use at off-peak times.
The price of each unit of energy on these tariffs can vary throughout a 24-hour period, and even on different days of the week.
So if your business can be flexible with how and when it uses energy, a time-of-use tariff could save you money. You could even consider changing your routines and processes so that you move to off-peak usage for some or all of your main energy-consuming activities.
To be on a time-of-use energy tariff, you’ll need to have either a half-hourly (HH) meter or a smart meter fitted.
Half-hourly (HH) meters
An HH electricity meter sends half-hourly meter readings to your energy supplier.
It is an automated process that enables you to accurately monitor your energy use and the times your business uses the most energy, helping you to look for ways to use it more efficiently.
Certain businesses are required by law to have an HH meter fitted. For example, large businesses that regularly use more than 100kW of electricity in a half-hour period are required to install an HH electricity meter.
Businesses in this category include factories, supermarkets, large offices and warehouses.
If your business uses 70kW of electricity or more in a half-hour period, you can also choose to have an HH meter installed.
If you’re unsure whether you’ve already got an HH meter, take a look at your supply or “S” number which can be found on a recent electricity bill. If this begins with 00, you already have one.
Smart meters
Businesses without an HH meter can have a smart meter installed instead. They send regular meter readings to your energy supplier automatically so you will only be charged for what you use (they put an end to estimated billing).
They also allow you to monitor your company’s energy use accurately so you can identify times of peak consumption.
All UK businesses (and households) must have been offered a smart meter by suppliers by the end of 2024 as part of a rollout by the government – although this deadline may be delayed as a result of the coronavirus pandemic.
Is a time-of-use tariff right for me?
Before you commit to a time-of-use tariff, consider whether it’s the right option for you, or you may actually end up paying more than on your previous tariff.
If your business uses a large proportion of its energy in off-peak periods or is flexible enough to shift to doing so, you could save significantly.
Having an HH or smart meter and being incentivised by a time-of-use tariff could also motivate you to plan how to use your energy more efficiently as a business. No matter what time of day, the more you can use energy efficiently, the bigger the potential for saving on your bills.
As a bonus, with time-of-use tariffs, you’ll also be helping to reduce the pressure on the UK energy infrastructure at peak times.
However, if you’re tied to using the bulk of your energy during peak times, time-of-use tariffs may actually cost more than other tariffs.
How do I switch to a time-of-use tariff?
If you’re interested in time-of-use tariffs, talk to your electricity supplier about the possibility of moving to one of these contracts.
Before you switch to a time-of-use business tariff, however, ask your supplier exactly how it will work so you can plan for the change in advance.
And, as with all financial transactions, always compare the tariffs you’re offered before you commit to a switch.
