What Is Commercial Electricity?
Commercial electricity is electric power that is specifically provided to businesses and commercial buildings, as opposed to residential buildings. Commercial electricity must be able to power a much larger space and more devices or appliances than domestic electricity. This means business electricity rates are typically much higher than residential electricity rates, and they’re sold on a different energy market for commercial electricity.
Factors in Commercial Electricity Rates
When it comes to understanding commercial electricity rates, it’s important to know that there are a number of factors that go into determining the commercial rate for electric utilities. Some are the same as domestic energy, while some are unique to its category.
Cost of generation
One of the main factors in higher electricity rates for business customers is the cost of generating electricity. This includes the cost of fuel, such as coal or natural gas, as well as the cost of maintaining and upgrading power plants. The cost of transmission and distribution, or the cost of getting electricity from the power plant to your business, is also included in the cost of electricity. Because there is more energy required for bigger buildings, the cost of generating and transmitting that power is inevitably going to be higher.
Government regulations & taxes
Government regulations and taxes also play a big part in determining commercial electricity rates for your business. Local governments can impose taxes and create new legislation that impacts commercial customers in regards to the process of acquiring electricity and the cost for doing so. These can include things like renewable energy mandates, which require utilities to generate a certain amount of electricity from renewable sources, and taxes on electricity generation and consumption.
Supply and demand
In deregulated markets, the supply and demand of electricity also plays a role in determining commercial electricity rates. When there is high demand for electricity, prices will typically be higher. Conversely, when there is low demand, prices will typically be lower. Therefore, the business landscape of your area can play a huge factor in the price of your business’s electricity.
Cost of upkeep
Another factor to consider when looking into commercial electricity prices is the cost of maintaining and upgrading infrastructure. As our energy systems become more complex and interconnected, it becomes increasingly important for utility companies to invest in new technologies, such as smart grids and energy storage, to improve the reliability and efficiency of the electricity system. As the need for better technology continues to rise, so will the business energy rates as companies need to cover their expenses.
Provider profit margin
Finally, electricity providers also have to consider their profit margin when determining commercial electricity rates. Providers are having to upgrade technologies and processes to meet demand, which of course means more revenue is required to stay afloat. They need to earn enough revenue to cover their costs while still continuing to invest in new infrastructure. One of the main ways companies must do this is to raise the cost of their services. While it is almost essential they raise their rates, they also need to stay competitive in order to attract and retain customers.
Time of energy usage
There is something that commercial customers can do that will simultaneously benefit their business and help electricity providers offer better rates for their customers. By shifting usage to off-peak hours, businesses can save money on their electricity bills while helping utilities better manage the demand for electricity and offer cheaper rates, as it is cheaper for the provider to generate and provide electricity during the times of day when it is not being used as much. Electricity rates vary depending on the time of day and can be significantly cheaper during off-peak hours, which are typically the standard business hours of 9-5.
In summary, commercial electricity rates are determined by a variety of factors including cost of generation, transmission, and distribution of electricity, government regulations, taxes, supply and demand, cost of maintaining and upgrading infrastructure and profit margins. Understanding these factors can help businesses make informed decisions about their energy usage and potentially save money on their electricity bills.
Check out our energy saving tips article to see how you can cut back on energy expenses.