Understanding Your Business Electricity Bill

It’s essential that you understand your business electricity bill. You should know what you’re being charged for and understand how these charges are applied. This could save you from overpaying for your business gas and business electricity.

In this guide, we’ll help you understand your business electricity bill and what makes up your charges.

How does business electricity differ from domestic electricity?

There are a few differences between domestic and business electricity contracts. These include:

Contract length

Business electricity contracts are longer than domestic deals. Under a fixed-rate deal, a business can be locked in for up to four years. With a domestic contract, this is usually just two years.

Cancellation terms

Domestic customers can cancel their contract at any time by paying an exit fee. This is not the case for business users. Often, businesses will not be able to cancel their contract until it’s up for renewal. This makes it essential to make the right choice when selecting a tariff for your business electricity.

Price

How suppliers buy electricity from the wholesale market can affect electricity prices. For domestic customers, electricity suppliers often purchase electricity in advance. Due to the amount of electricity used by businesses, most suppliers purchase electricity once a contract has been agreed.

What makes up my business electricity bill?

Two main elements that make up your business electricity bill. These are:

Unit rate

This is the amount you pay for your business gas and electricity per kilowatt hour (kWh).

A fixed tariff unit rate will stay the same throughout your contract. Variable rate deals will see your unit rate change depending on market activity.

Selecting a low unit rate tariff can reduce your business electricity bills. However, some contracts may offer a low unit rate with a high standing charge. Unit rate costs can also depend on the regional location of your business.

Standing charges

A standing charge is a daily fee that you pay to your supplier. This covers the cost of delivering gas and electricity to your premises. It also helps cover supplier costs such as network maintenance, meter readings, transportation, and distribution.

Businesses do have the option of choosing a tariff with no standing charge. However, unit rates do tend to be higher on no-standing charge tariffs. As a result, they are best suited to businesses that operate at weekends or on a seasonal basis.

What other factors make up business electricity bills?

Your tariff’s unit rate and standing charge are the main factors that make up your electricity bill. However, there are other costs you need to be aware of. These include:

Wholesale costs

Wholesale costs account for around 38% of your electricity bill. Gas and electricity wholesale costs are volatile, and increases can affect your price per kWh.

Wholesale costs can change every day depending on supply and demand. Retail electricity prices are therefore set higher than wholesale costs to prevent continuous fluctuations. However, prices can be affected if wholesale costs breach the retail price.

VAT

You’ll be charged 20% VAT on your business electricity bill. Domestic customers are typically charged 5%. Businesses with low electricity consumption are sometimes able to get their VAT charges reduced to 5%.

This depends on the amount of electricity you use. If you use less than 33 kWh of electricity or 145 kWh of gas on average per day, you may be entitled to pay a reduced VAT rate.

You may also be able to get your VAT reduced if you have a domestic element to your business.

Climate Change Levy (CCL) ­

A Climate Change Levy is a fee that you are required to pay for every unit of non-renewable electricity your business uses. The government created this initiative to help combat climate change and promote the use of renewable electricity sources such as solar panels, wind turbines and hydropower.

Businesses that use renewable electricity can be exempt from paying CCL. You can also avoid paying this levy if you use less than 33 kWh of electricity and 145 kWh of gas a day.

Network Charges ­

Network maintenance, losses and usage can impact the cost of your business electricity bill. This includes electricity transportation, distribution, transmission, and balancing costs. Network charges typically account for around 23% of your business electricity bill.

Is there anything else that I need to look out for?

It’s essential that you know your business electricity contract’s end date. You can find this on a recent electricity bill or your original contract. Keeping note of this will help you avoid expensive out-of-contract or rollover rates.

If you run a micro business, your supplier must send you a renewal letter. This will contain your renewal rates, current rates, and current usage. You should bear in mind that renewal prices are often much more expensive than other options.

electricity suppliers are not required to provide larger businesses with renewal letters. This means the onus is on you to remember your contract end date.

Comparing electricity prices is the most effective way to find a cheaper electricity deal. You can also arrange for your new contract to start as soon as your current deal ends.

How can I reduce my business electricity bill?

There are several ways in which you could reduce your business electricity bill. From investing in a renewable electricity source and joining a Feed-in-Tariff (SEG) scheme to encouraging staff to become more electricity efficient.

At Business Electricity Prices, it’s our goal to help you manage your business electricity and lower your bills. That’s why we’ve created a number of electricity-saving guides to help you reduce your business overheads.

Our top suggestion for reducing your business electricity bill is to compare electricity prices and switch suppliers. With our free online comparison tool, you can find the best electricity tariff for your business in minutes.

Once you’ve chosen the tariff that’s right for you, our experts will be on hand to support you throughout your switching process.