Your independent energy adviser
0800 051 5770

Understanding Business Energy Bills

Running a business means having a lot of different tasks competing for priority, so scrutinising your business energy bills probably never makes it to the top of the list, yet spending a few minutes taking a look at your bills can really pay off.

The three most important things on your business energy bill are:

  1. Your standing charge
  2. Your unit rate(s)
  3. Your contract end date

However, there are other costs too - seen and unseen.

In this guide, we'll help you work out if your bills are too high and explain all the different elements that make up your bill. We also explain the different factors that you don't see on your bill, but which still affect the price you pay.

What you see on your business energy bill

Standing Charge

The standing charge is the rate you pay each day for the supply to your business, irrespective of how much energy you use.

Business electricity tariffs always have a standing charge, however not all business gas tariffs do. Though in truth where the standing charge is low or non-existent the costs this would have recovered for the supplier will be included in the unit rate.

Unit Rate

The unit rate is the amount you pay for each kilowatt hour (kWh) of electricity or gas you use.

Getting the lowest unit rate doesn't always mean you're paying the lowest possible price for energy. It depends on how much you use. For heavy users, a low unit rate is vital, but for relatively light users, a low (or no) standing charge and higher unit rate might be preferable.

Contract End Date

The contract end date is the point at which your current fixed price period ends.

Climate Change Levy (CCL)

The Climate Change Levy (CCL) is a government levy that you pay for every unit of non-renewable energy a business uses.

You will not have to not pay CCL for any renewable energy you use and neither do businesses that use less than an average of 33 kWh of electricity and 145 kWh of gas a day. That's 12,045 kWh of electricity and 52,925 kWh of gas a year.

You also don’t have to pay if your business has a domestic or residential element to it, for example a B&B, care home or campsite. If you think you shouldn't be paying CCL, or simply want some advice on this level then here at Business Juice we can help you make sense of this energy tax.

VAT

Talking of taxes, most companies pay 20% VAT on their business energy bills.

However, similarly to CCL, you will only need to pay 5% if you use less than an average 33 kWh of electricity or 145kWh of gas a day, or if you have that domestic or residential element to your business.

For more information on the reduce rate of VAT and how businesses can qualify visit our Guide to VAT Declaration

IGT charges

Some business premises are supplied their gas via pipes owned by an independent gas transporter (IGT) rather than the normally default choice of National Grid Transco.

Whilst it is in no way obvious to the premise holder that they are supplied via a different pipe network, being supplied by and IGT can mean that they have to pay higher prices. This is because the gas supplier will have to pay the IGT a fee to use their pipes in addition to any costs for using any parts of the Transco network on it’s journey from source to meter.

Unfortunately, if you are served by an IGT, the choice of gas supplier is limited too. This added complication in the gas market means it’s crucial to know your circumstances and how best to resolve them. Business Juice can help you find the right gas supplier and work out how much the IGT charges will cost and whether there is anything you can do to minimise its impact.

Smart meter charges

Some energy suppliers now provide a smart meter as standard.

All will recover costs for these metering systems however only some will feature an explicit charge on the bill.

Even with an additional charge though a smart meter can make real financial sense.

The accuracy and regularity of their automated meter readings can help a business be more energy-efficient, improve cashflow through accurate billing and remove the administration and cost from the inevitable estimated read problems we have all suffered.

To find out more about smart meters and what they can do for you and your business, read our guide to smart meters or call us on 0800 051 5770 and we can provide all the information you need to make the decision of whether a smart solution is right for you.

What you don't see on your business energy bill

An energy bill is as interesting for what you don't see on it as what you do.

There are a significant number of challenges required to get your gas and electricity from source, via wires and pipes, to you meter, and the costs for enabling this need to be recovered by your energy supplier.

These costs mount up to such an extent that they can make up over 50% of the average bill! In brief these 'hidden' costs include:

Wholesale energy

The wholesale markets for electricity and gas are volatile. As a result the underlying impact these can have on the unit cost of your electricity can be significant. Prices in the gas market change daily and in the energy market every half-hour. Most businesses are insulated from this continuous fluctuation by virtue of the ‘retail’ price of gas and electricity being set higher than the wholesale price. However once that retail price has been breached, the whole market moves up again, retail price and all.

Transmission & Distribution

The cost of physically transporting your gas or electricity from source to its destination varies by area: the further away you are based from where the energy is generated or procured, the more it costs to transport. Transmission has been likened to the national motorway network for energy whilst Distribution is seen as the more localized A and B roads carrying the energy to its ultimate destination. Both the cost of transporting and the cost of upkeep of the transportation system itself need to be paid for out of your energy bill.

Losses

There is a double whammy to this long distance cost impact and that is that the transportation of energy is naturally inefficient. What gets loaded in at source will not be the same amount that makes it out at the meter. These are known as losses, which are in effect exactly what they are, the lost energy on the journey from beach or generator to meter. Naturally the further the energy has to travel the greater the volume of loss. As a result the cost of that loss falls more heavily on users who live more remotely from the source. In effect the cost of loss is the cost of the physical energy that was put in but not received.

Industry charges

As you can probably tell already the network of pipes, wires, organisations, authorities and regulators is as wide as it is deep as it is varied and all these need to be paid for. Not only for upkeep but also for future proofing to ensure we have a fit for purpose energy network well into the future. As a result all energy bills have an element of cost recovery to enable this continuous cycle to operate.

Government initiatives

Although the Government have been explicit with the like of Climate Change Levy appearing as a separate line on energy bills, there are a number of other levies that are hidden away. For instance the Renewables Obligation and Feed in Tariff are two of the better-known ones that all but a few businesses need to pay. These elements cause controversy as they are not about keeping the lights on or maintaining the network but are about de-carbonising the fuel supply to meet international quotas.

Metering

The meter in your premise may look like a box with a dial or simple LCD readout but in fact they can be quite complex machines managing multiple energy patterns at differing times of the day. These need to be paid for as a physical asset (often amortised over a very long period) and also “maintained” and if it’s not a smart meter, read.

Supplier margins

The final and most controversial element comes the supplier margin. Contrary to popular belief the average margin is not the biggest element on the bill, in fact it is amongst the smallest. Furthermore it is not all straight profit, with marketing costs, acquisition costs, administration costs all being covered before net profit is taken. Nobody is suggesting that energy suppliers aren’t highly profitable businesses but hopefully this guide helps understand the multiple items that make up your energy bill.

To understand the constituent part of the energy price in more detail, visit our guides to What makes up the electricity price and What makes up the gas price.