The amount you pay for energy plays a crucial role in managing your overall business costs. If you’re overpaying for energy, this could be a huge opportunity to restructure your energy plan and reduce your overheads.
But how do you know if you’re over-paying? It often comes down to energy tariffs, and ensuring your business is on the right tariff and plan.
Energy tariffs refer to the rates charged for the supply of electricity and gas to businesses. These rates are determined by several factors, including the type of tariff, consumption patterns, peak demand, your business’s location and the energy provider.
In Australia, there are different energy tariffs and the type you have impacts the amount you pay. Here’s how to understand how they work and how to choose the best one for your business needs.
Types of energy tariffs
Generally, there are 3 types of energy tariffs:
Fixed-rate tariffs: You pay a set amount for electricity or gas over a specified period, regardless of fluctuations in the market. This tariff provides certainty in budgeting, but if the market price drops, you may pay more than the average price.
Variable-rate tariffs: Pricing fluctuates according to the market price of energy. You have the flexibility of taking advantage of lower prices when the market drops. However, it also means that your energy costs could increase when the market rises.
Time-of-use tariffs: Time-of-use tariffs charge different rates for electricity or gas based on the time of day, or day of the week, that the energy is consumed. These tariffs incentivise businesses to use energy outside peak periods, when demand is lower, as this reduces the strain on the grid.
Factors that affect the cost of energy
Your business's energy consumption patterns are the most significant factor in determining your energy costs. High consumption during peak periods can result in higher tariffs and increased costs.
For instance in Australia, peak periods for electricity tariffs are typically between 2pm and 8pm on weekdays, i.e. during the day when people are using energy in their homes and businesses. This can cause a strain on the grid, which energy companies aim to address by charging more for energy during this time.
If you can structure the majority of your energy consumption to take place outside of these peak times, you can access cheaper tariffs.
Your business's location can also affect the cost of energy, as some areas have higher energy costs than others due to supply and demand.
Choosing the right energy tariff for your business
Choosing the right energy tariff for your business depends on several factors, including your budget, sustainability goals and energy needs. The right tariff for your business goes hand-in-hand with ensuring your business uses energy in the most efficient way possible, and includes things like:
Analysing your energy consumption: Determine when you use the most energy and where you can reduce usage during peak periods. Businesses that can shift energy use to off-peak periods by rescheduling operations (eg. manufacturing, cleaning and cooling) stand to gain the most from time of use tariffs.
Conducting energy audits: this can help businesses identify energy wastage and efficiency opportunities.
Using energy efficient equipment: Switching to LED lighting, using energy-efficient appliances and equipment, and implementing energy-saving measures can all help to reduce energy usage during peak periods. If you can’t shift your business usage to off-peak, this could help offset some of the costs of a fixed or variable tariff.
Energy tariffs can be complicated to navigate, but by analysing your energy consumption, considering your budget and sustainability goals, and implementing energy-saving measures, you can reduce your energy costs.
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