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How Are Business Electricity Rates Determined in the UK?

Business energy bills can be difficult to understand, but it’s worth knowing your way around them because they contain a lot of useful information that will help you manage your costs and reduce energy use and save money.

Here’s more information on understanding your business energy bills, including the key costs you require to look out for before linking business energy contracts and converting suppliers.

How Business Electricity Pricing Works?

Business electricity rates and plans are calculated differently as compared to residential rates. The first thing to remember is that you don’t have to use the same supplier for both your business’s electricity and gas – although you may get a better price.

Business electricity unit prices may be cheaper than domestic units due to the amount of electricity used, but most business clients pay a higher rate of VAT. Business electricity rates are based on the size of your business and electricity consumption. 

How are business energy bills calculated?

You may consider that your business’s energy bills are made up of the amount of energy that you just used in a month. But there’s a lot more to it than your consumption of energy. There are the following steps that help to calculate energy bills:

  •  Amount of energy you use:

The amount of energy of kWh you use will be multiplied by the unit rate that you pay on your present tariff.

  • Standing Charge:

This is a smooth daily charge that you pay irrespective of how much energy you use. 

  • Taxes and Levies:

These extra charges including VAT and Climate Change Levy are added to your bill.

If you are eligible for any discount, such as a 5% VAT reduction, this will also be shown on your bill and will work towards your total payment.

What does a business energy bill consist of?

Business energy bills consist of the following aspects:

  • Your energy consumption x unit rate
  • Standing charge x billing period
  • VAT
  • Discounts

Together, these components signify the price you will pay for your business energy. Unfortunately, this does not assure that your billing is precise. 

The best way to avoid this is to frequently submit readings to your business energy supplier so they can get precise readings to work with.

What is a standing charge?

The standing charge on your business energy bill is a static daily expanse that you agree to pay when you select a new business electricity rates agreement. This cost covers utility energy provider transportation costs and maintenance costs for your meter.

Standing charges also vary depending on your business location, but no matter how little or how much energy you use.

What is the unit rate?

This is the price you will pay per unit of energy you use. When you agree on a new business energy contract, you will also agree on a unit rate. This is called the cost in pence per kilowatt hour (kWh).

Unit rates may vary depending on the time of day. So much so that your day and night rates can be completely different. So, it makes sense to consider the cost of these rates against your working hours.

Reasons for UK energy high prices

As you can see, we are facing a global energy crisis, but to make matters worse. The UK is also facing the following problems:

Less renewable energy production

Less wind, as well as the closure of some nuclear power stations, means that a large proportion of our electricity generation is using gas for its production. If you’re on a green energy contract that provides 100% renewable electricity, you’ll still see your rates rise. Because the way the UK’s utility energy provider system works means that the price of renewable energy is linked to the price of gas. If gas prices go up, so do the prices of renewable energy.

Low gas reserves:

The UK has the lowest gas reserves in Europe, which means there is almost no way to store gas to use it when needed. This capacity corresponds to around 2% of the UK’s annual demand. That compared with 25% for other European countries and up to 37% in Europe’s four largest reserves.

Inadequate government support:

Although the government’s £15 billion aid package will give households £400 in credit over the six months from October. It will not have as big an impact as measures taken in other European countries. France, for example, has limited electricity price increases to 4 percent by the end of the year.

Conclusion

If your energy supplier turns you onto a more expensive standard tariff, you will soon likely pay more for monthly billing. To avoid this situation, you need to already replace your previous agreement with a new one.