What is the Difference Between Domestic and Commercial Energy?

Although the gas and electricity used to power homes across the country is the same gas and electricity that keeps businesses up and running, there are some key differences between domestic and business energy contracts.  

When it comes to business energy, there are several factors that can make things seem more complicated. Our guide takes you through the key differences between domestic vs commercial energy, so you can find the right plan for you. 

Domestic energy is a term used to describe the energy supplied to ‘private dwellings’ such as houses, flats or other buildings used for permanent living and domestic purposes. The energy supplied is typically used for things like heating, lighting and cooking, and the contract is set up between the energy supplier and the person living at the property in charge of paying for the utilities. 

Business energy refers to the energy supplied to non-domestic, commercial properties, such as shops, offices, restaurants, hospitals and schools. Business energy contracts are usually set up between the business owner and the supplier, though some businesses may choose to use a broker.  

Although the actual energy used comes from the same sources, there are still some key differences between domestic and commercial electricity.  

Businesses and households will often use their energy differently. In domestic properties, although the amount of energy used may vary depending on the number of people living at the property, it is typically used for the same purposes by everyone, such as heating the home, cooking, and running household appliances.  

But for businesses, energy use can vary greatly depending on the nature of the business. For example a restaurant and a factory will use different amounts of energy for different purposes.   

At the beginning of an energy contract, the supplier will purchase the energy supply needed for the duration of the contract in advance. As businesses use much more energy than domestic households, if a business closes down during their contract, suppliers face more risk of financial losses for pre-purchased energy. 

Although the actual rate of energy used for business and domestic contracts is similar, there are additional costs such as taxes and non-commodity charges involved in business energy contracts that will affect the price you pay. Businesses will also typically use much more energy than domestic customers, making their bills higher. 

Taxes and Levies 

One of the key differences between domestic and commercial electricity is non-commodity costs such as taxes and levies. All energy customers must pay tax; however, a domestic customer is charged VAT at 5%, as opposed to the 20% charged for commercial plans. Both domestic and commercial plans come with standing charges, but there are additional costs for business customers, such as government-imposed levies. 

To find out more about the non-commodity costs involved in commercial energy plans, check out our guide to Understanding Non-Commodity Costs.  

Cooling Off Period 

When you sign a domestic energy contract, you will have a 14-day ‘cooling off’ period, during which you are able to cancel your contract without facing a penalty. However, business energy contracts are not given a cooling off period, and all contract signings are final. 

Contract Term/Length  

Most domestic contracts have a fixed term of 12 months, whereas businesses can choose to lock in their contracts for up to 3 years. 

Energy Price Cap 

The energy price cap is set by Ofgem and reviewed every three months; it applies to all domestic energy contracts and is based on typical household usage. However, there is no price cap for business energy and rates can change with fluctuations in the energy market.  

Termination 

Businesses generally cannot terminate their contracts early without facing a penalty. This amount usually equates to the cost of the energy purchased for the remainder of their contract. Similarly, domestic customers will be asked to pay an exit fee for terminating a contract early, but this is often lower than that for a business.  

Objections 

Domestic energy customers are usually only rejected for an energy contract if they have a large unpaid debt with their previous supplier.  

Business may be rejected for an energy contract if they have a low credit score, debt, or if they are in the middle of a contract with another supplier. If your business is rejected for a contract, the supplier must give a reason for their objection. 

In recent years, the difference between domestic and business energy has been somewhat blurred, with more and more people working and running businesses from their home. This has prompted many remote workers to look for the best option to suit their unique energy needs.  

Many home workers will simply keep their domestic energy contracts to power them through the workday, but it is sometimes possible to get a business energy contract if you work from home. However, there are some restrictions.  

The general rule is that 50% of your energy usage needs to be used for business purposes. This includes things such as lighting, heating and powering business equipment like computers and printers.  

We know that business energy can be confusing, that’s why we’ve created a range of free guides as well as easy-to-use online tools to help you understand and get the most out of your energy.  

Find out more about how Yü Energy can help you and get your free business energy quote online today.