Understanding your business electricity bill
All businesses need electricity, whether for general use like lighting and computers or high-intensity machinery and equipment. Your electricity costs can quickly add up, especially if you don’t keep on top of your contract.
If you haven’t recently considered your commercial electricity bill, you’re likely to be on an uncompetitive rate. Businesses who let their contract run down without arranging a new one are liable to major increases in the price they pay for their electricity. Check your latest energy bill to see how much you’re paying and read on to see whether you’re being overcharged. If you haven’t recently negotiated a deal, it’s likely that you’re paying more than the average electricity bill for a small business.
What costs should you look out for on your commercial electricity bill?
Commercial electricity bills feature a variety of information, from your supply number to your bill cost before VAT and more. And while you’re most likely concerned with the total amount, the most important costs to be aware of are the unit cost and standing charge.
Unit Cost – This is what you pay for every kilowatt-hour (kWh) of energy you use.
Standing Charge – This is the cost charged for having energy supplied to your business premises and covers the upkeep of the national grid.
What’s most important when it comes to these charges is the fact there is no-one-size-fits-all for the best rates. Some businesses may benefit from a fixed tariff with no standing charge, while others are best suited to variable rate tariffs with both a unit cost and standing charge. That’s because all businesses are different, with different locations, sizes, energy usage and working hours. But as you will still want to make sure you’re not being overcharged, we’ve put together a guide to the average electricity bill for a small business.
How much is an average business electric bill?
Small businesses in the UK are generally defined as having less than 50 employees and a maximum turnover of £3.26 million. Most use between 15,000 and 25,000 kWh of electricity per year. Using this amount of energy results in a unit cost of around 11p per kWh of electricity, while the standing charge should be around 25p per day.
Micro businesses, who generally have less than ten employees, pay a little more for their commercial electricity bills – around 13p for their unit cost and 28p per day for their standing charge. That’s because they only use between 5,000 and 15,000 kWh of electricity, resulting in the higher costs.
Medium sized businesses usually get the best deals as they require more electricity and can, therefore, buy in bulk. With up to 250 employees, they’ll use between 25,000 and 50,000 kWh of electricity every year. The unit cost will average at 10.5p per kWh of electricity while the standing charge should be around 22p per day.
While the different costs for different sized businesses may not seem substantial, they do add up, especially when accumulated over a whole year. That’s why it’s important to make sure you’re on a competitive tariff.
What affects the cost of business electricity bills?
The average business electricity bill will often fluctuate. For business owners, this can make life difficult – especially if your business is a start-up or doesn’t have much room to manoeuvre when it comes to cash flow.
While it is certainly frustrating that the energy market is so volatile, this is not always down to energy corporations just looking to make a quick buck. Instead, there’s a whole variety of factors that influence commercial electricity bills.
Electricity generation costs change every single day, even by the hour. The cost of electricity is mostly based on demand. So, for example, between 9am and 5pm businesses all around the country require electricity to function, putting the national grid under severe strain and costing energy providers more to meet that demand.
On the other hand, there’s much less need for electricity at night, which lowers the cost of supply. The price for energy also changes each season, with much less energy required in summer due to longer days and warmer temperatures.
The Electricity Market Reform Policy
To counteract these fluctuations and to reduce the need for high-emission electricity, the government introduced the Electricity Market Reform Policy. This policy included a Contracts for Difference reform and new rules for the Capacity Market.
Put simply, the Contracts for Difference reform pays low-carbon electricity generators the difference between their costs and the average price for electricity. This means those providing electricity are protected from volatile wholesale energy costs while also protecting customers from paying higher costs when demand is high.
The Capacity Market was introduced to increase investment in low-carbon electricity. On the most basic level, it provides extra finance to those energy companies who generate electricity without the need for high-emission production processes.
World events also play a role in energy price fluctuations. Natural disasters and conflicts can halt access to oil and other fuels. This causes a huge increase in demand and means energy providers have to pay more for the wholesale cost of energy.
There are a lot of factors which can make understanding your electricity bill a little confusing. To make sure your commercial electricity bill is competitive, consider switching with MoneySuperMarket. Our energy experts can advise you on the best tariffs and deals for your specific requirements, ensuring you find the best rates and ultimately, lower your bills.
To start your business energy comparison, call us on 0800 088 6986 today.