Many economic factors contribute to determining gas tariffs. From switching costs to business consumption, gas is a necessity in these modern times. However, business owners must consider the following factors to better understand the complex tariff-related concept.
Your business gas provider performs the following constituent tariff calculations.
Give it an extensive read if you wish for gas overheads to remain at a manageable rate.
The scale of the business
The business scale refers to the amount of energy it will require. Thus, the scale of the operations affects the gas tariff. Moreover, there is also a guarantee that dues will be paid because of the future expected revenue. The large-scale business would not face any financial difficulty in paying these charges.
As discussed above, when a gas supplier provides gas to multiple business sites, it is likely to charge less. Many suppliers may offer a discount as they foresee a sustainable future relationship.
Domestic gas and electricity are provided on a rolling contract. This means when you move or shift your residence to a new location, you can take the contract with you. However, this is not the case with business gas. When it comes to supplying gas to businesses, they are usually based on a fixed period, such as five or ten years.
The second factor that contributes to gas prices is the location of the business. Not all businesses are set up nearest to gas filtration plants. Therefore, your business may face limited flexibility if you are set up at a remote location separate from industrial density. However, if you are a construction or any similar business, this may not apply to you.
The contractual duration plays a pivotal part in deciding the rate of gas tariffs your business might receive. Mostly, small-scale businesses are not allotted contracts for less than a year. At most, they are hired for two years due to their limited resources and liability.
However, contracts can run longer. That is the bitter reality of business dealings, but different contracts will provide different tariff rates.
Now let’s learn about the two types of tariffs.
Fixed tariff stays “fixed” for the price per unit, as the name suggests. It is also cheaper for the business as the owner can negotiate a more extended contractual period at a constant, inexpensive rate.
Variable or flexible tariffs per unit fluctuate. Businesses pay for the gas they are consuming upfront without any rate negotiation. However, suppose gas prices fall after you have made the payment. In that case, your gas expenditure variance is more than likely to be adverse.
Further elaborating on the variable tariff concept, sometimes businesses may end up paying a higher rate compared to if they had chosen the fixed option. It factors wholesale prices of the global market and its impact on the local economy.
If the gas is being supplied from non-renewable resources, such as coal and fossil fuels, the gas prices are likely to be higher. This is mainly to recover the excavation, filtering, transport, and processing of raw gas into consumable gas for businesses.
However, suppose the gas is being derived from renewable resources. In that case, it is likely to be charged less because of the ample raw resources available.
Some gas suppliers offer no standing charge. This means that the businesses are not obligated to pay a daily set rate for consuming gas. However, the absence of standing charge hikes up the gas-consuming price as the supplier needs to recover gas cost somehow.
Some of you may be wondering what standing charges are? You can consider this rental fee as customers of business gas companies are not only paying for the gas their business consumes. The gas charge includes a provision for the gas supply.
Depending on your chosen supplier, some may offer a higher standing charge than others. Some may eliminate it, as mentioned above. This is helpful in case you assess your gas supplier is charging more than its competitors.
Business owners rarely experience discounts. However, if your business chooses the gas supplier as an electricity supplier, you may get rewarded somehow. Consider this a done deal if your business operates at an extensive scale.
The same may not be experienced for the small or medium scale business. Therefore, the owners are advised to source gas supply from multiple suppliers to create an ideal situation at the lowest possible tariffs.
Exit fees heavily influence tariffs business gas comparison. This particular expense the business must pay if you wish to end the current contract with the chosen supplier. The reason to do so is irrelevant. You may have decided to switch business gas suppliers, or your business is shifting its location.
In most cases, exit fees outweigh the switching costs. Regardless, speaking in economic terms, exit fees are heavy on the financial reserves. Therefore, rethink before making this crucial decision.
Suppose you have discovered your gas supplier is providing more suitable tariff plans. In that case, it may be another reason to get out of a business contract. Therefore, choose wisely.
Irregular fluctuations of gas prices impact all of us, whether you are an industrialist or a start-up business in the private sector. Tariffs are a challenging reality that must be regulated, so businesses flourish rather than succumb to gas price inflation.