The difference between business and residential electric rates

If you’ve ever gone looking for an electricity deal for a commercial and residential property, you might have noticed that there's a difference in prices. This might lead you to wonder why there is a price difference.

Simply put, businesses generally place a more significant load on the electricity grid than residential properties, which leads to higher costs. However, other factors come into play as well. 

What factors contribute to the difference between business and residential electric rates?

Infrastructure

When looking at how electricity is set up and used in a residential home, it‘s often a small space with 4-5 people using power and barely any large appliances. However, when you look at a business, it often has larger appliances, more people and therefore requires a higher load and extensive electricity infrastructure to operate at its peak. These increased demands come with a higher cost.

Type of plan

When shopping for electricity, you’ll likely notice that some retailers offer multiple deals and discounts for residential plans but less or none on their business rates. When it comes to the plans offered by retailers to their customers, there are often two types of plans available, fixed-rate and variable.

In the first type, your electricity rate will be determined at the start of your contract and will stay the same until its end. This means your usage and supply charges won't increase or decrease during your contract tenure. A variable-rate plan is a standard deal offered by almost all energy retailers in Australia. In this plan, your electricity charges will fluctuate according to the market trends.

The availability of each plan depends on what the retailers in your area offer, and whether you’re looking for energy for your home or a business. You’ll generally find a difference between business and residential electric rates in this instance.

Most retailers offer higher discounts or more varied plan types to residential customers. However, they may still have multiple options for businesses. If your business is considered commercial sized, you’ll likely have to get a specially designed plan for your business’s needs by contacting the retailer directly.

Time of usage

The biggest reason there is a difference between business and residential electric rates is when and how much electricity is used.

You may have heard of peak and off-peak times when it comes to electricity. The peak is when more people are using the electrical grid, whereas off-peak is when fewer people are. If you consider when many businesses typically use most of their electricity, it’s likely to coincide with standard business hours. In comparison, residential properties often use most of their electricity during off-peak nighttime hours.

Due to this, electricity retailers charge businesses higher rates because they’ll be putting additional pressure on an already busy electricity grid. If you’re a business whose opening hours are in off-peak periods, you may be able to negotiate better rates with your retailer.

Level of energy consumption

The other major reason there is a difference between business and residential electric rates is the amount of energy consumed by the property. When it comes to your electricity consumption at home, you may have more control over it. You know the appliances you have, the energy they consume and which months you’re likely to spend more than anticipated. You probably even have a few ways you curb your usage at home.

However, if you have a business, there is less control of what’s needed when it comes to appliances or other electricals. You can’t just stop using a machine for a month if the bill goes up, especially if it’s a core part of your business. Plus, you have other considerations that impact your energy consumption, like your business size, number of people using it, and the overall higher price of electricity for businesses. There are ways you can lower your energy usage as a business, but the sheer fact of being a business means you’ll have higher electricity consumption than a standard residential property.

Whether you’re shopping for residential, business or commercial electricity plans, understanding why there are differences in the prices can be helpful. And no matter which type of electricity customer you are, you can still shop around and compare the prices on offer from different retailers to find the one that’s right for you.