Energy Procurement for Hospitality

A hotel running 120 rooms, a commercial kitchen, and a laundry service can spend £80,000 to £150,000 a year on energy. A busy pub with a kitchen will routinely see electricity bills of £2,000 to £4,000 a month. For most hospitality operators, energy sits third or fourth in the cost stack — behind labour and food, but ahead of almost everything else. And yet the majority of those operators are on contracts they’ve never actively tendered.

Why hospitality energy costs are structurally high

The hospitality sector is energy-intensive by design. Commercial kitchens run multiple high-draw appliances simultaneously — combination ovens, fryers, dishwashers, extraction systems — often for twelve or more hours a day. HVAC systems must maintain comfortable temperatures across front-of-house spaces while managing the heat generated by kitchen operations. Industrial laundry, common in hotels and larger pub groups, adds a sustained thermal load that runs largely regardless of occupancy. Then there’s the 24-hour element: refrigeration, security, background heating, and fire systems don’t stop when the last guest leaves. Hospitality buildings rarely have the overnight demand troughs that allow other businesses to benefit from time-of-use tariffs.

The result is a consumption profile that is high-intensity, relatively flat across the trading day, and genuinely seasonal for many operators. A coastal hotel group will see dramatically different consumption in August versus February. A city-centre restaurant cluster may have the opposite problem — Christmas trading creating peaks that a standard fixed contract wasn’t priced to accommodate.

Seasonal demand and what it means for contract choice

For hospitality businesses with clear seasonal variation, the standard fixed-rate contract creates a structural mismatch. Fixed contracts are priced on your estimated annual consumption, spread evenly. If you consume significantly more in summer or winter than the contract anticipated, you may face out-of-contract unit rates for the excess, or find yourself holding surplus volume in your quieter months that you’re effectively paying for without using.

Flexible procurement structures — including contracts with volume tolerance bands or seasonal unit rate adjustments — exist precisely to address this. They’re not appropriate for every operator, and they carry their own risks if wholesale prices move adversely. But for a seasonal hospitality business, the question of which contract structure to use is at least as important as what unit rate you’re paying. We’ve seen operators saving more from a structural change than from a rate reduction, simply because the previous contract was a poor fit for their trading pattern.

Multi-site groups add another layer. A pub group with fifteen sites across the south of England has procurement leverage that each individual pub doesn’t. Aggregate tendering — taking all sites to market simultaneously under a single tender — typically delivers better rates than renewing each site independently as it falls due. Suppliers price risk at portfolio level, and a consolidated volume commitment is a better offer than fifteen small contracts.

VAT and CCL: the costs nobody challenges

Commercial energy carries 20% VAT as standard. The 5% reduced rate applies where energy is used for a qualifying purpose, and for most hospitality businesses it doesn’t — food preparation doesn’t qualify in the same way it does for charities or qualifying residential use. However, the Climate Change Levy position is worth examining. CCL applies to electricity and gas used for non-domestic purposes at rates that have increased substantially since 2019. Businesses on small contracts supplied via domestic-adjacent meters sometimes find they’re being charged CCL incorrectly, or conversely, that they’re not claiming de minimis exemptions they’re entitled to.

More commonly, what we find in hospitality is not an incorrect tax treatment but a procurement structure that’s never been reviewed. Auto-renewal clauses are standard in commercial energy contracts. The rollover period — typically 30 to 120 days before contract end — is the window in which you can give notice and go to market. Miss it, and you’re locked in for another fixed term, usually at a rate that reflects the supplier’s commercial interest rather than yours.

The procurement angle: the cost of inaction

The most common thing we hear from hospitality operators when we first speak to them is some version of “we know we should sort this out but it keeps getting pushed down the list.” Energy procurement sits in the category of things that feel administrative until the bill arrives, at which point it feels urgent — but the urgency passes without action because there’s no immediate deadline.

That changes when you calculate what inaction costs. A hospitality business spending £80,000 a year on energy that hasn’t been to market in three years may have paid 15 to 25% above the rates available to active buyers over that period. At £80,000 base spend, that’s £12,000 to £20,000 over a contract cycle. For a business running on typical hospitality margins, that’s the difference between a profitable year and a marginal one.

We work with hospitality operators on a commission-only basis — we’re paid by the supplier when a contract completes, and that commission is disclosed transparently. The first conversation costs nothing. The cost of not having it is measured in your next energy bill.

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FAQ

Does my hospitality business qualify for reduced-rate VAT on energy? Most hospitality businesses do not qualify for the 5% reduced VAT rate on energy. The reduced rate applies to energy used for domestic purposes and a narrow set of qualifying residential facilities. Standard commercial hospitality operations — kitchens, bars, restaurants, hotels — are liable at 20%. However, if your premises include staff accommodation or qualifying residential units, those elements may be separately metered and eligible for the lower rate. It’s worth auditing this if your building has mixed use.

We have five sites — does it make sense to procure them together or separately? Together, almost always. Aggregated procurement gives suppliers a larger volume commitment, which reduces their pricing risk and typically translates into better unit rates. It also simplifies contract management — one renewal cycle, one set of negotiations, one broker relationship. The one exception is where contract end dates are so staggered that forcing alignment would mean accepting unfavourable terms on some sites to synchronise the rest. In that case, we’d usually recommend a transition strategy to bring sites into alignment over one contract cycle.

How much notice do we need to give to avoid auto-renewal? This varies by contract and supplier, but the standard commercial energy contract requires between 30 and 120 days’ notice before the contract end date. Some contracts specify 90 days. Critically, this means the decision to tender needs to be made months before the contract actually ends — not in the final weeks. If you don’t know when your contracts end, or what the notice period is, we can pull that information from your existing contracts or from the supplier directly. Most hospitality operators who’ve auto-renewed didn’t intend to — they simply missed the window.