Difference Between Standing Charge and Unit Rate

Many UK businesses are still reeling from the devastating effects of the pandemic and to add insult to injury, additionally have to face a cold, hard winter struggling to pay astronomical and unprecedented commercial utility bills.

Business Energy has reported that “usage and other government initiatives have increased average [electricity] bills by 100% or more over the past seven years” and according to power-technology.com, new research has revealed that UK energy bills could increase by as much as 30% in 2022!

Power-technology.com further reports that the average electricity bill for businesses in the UK is £3,061 per year and businessenergy.com estimates the average small business energy bills for both gas and electricity are around £3,507 per year or £292.25 per month.

All of this means that now, more than ever, you need to make sure you’re getting the very best commercial energy deal for your UK business and knowing the difference between a standing charge and a unit rate and which one is more important for your particular business needs can help you source the best deal.

What is a standing charge?

• A standing charge is a daily fee you pay to your energy provider, even if you don’t use any energy.
• An energy supplier’s standing charge can vary between 20 pence to £1.50 a day.
• A standing charge is payable to cover your supplier’s costs for supplying and maintaining your energy supply, and for conducting meter readings.

Why are standing charges different?

Standing charges can vary depending on your:

• Energy type - gas standing charges are typically slightly lower than electric and some gas tariffs have no standing charge at all; however, this cost will usually be absorbed by the unit rate.
• Energy provider - different suppliers have varying charges.
• Energy usage - the size of your business and when it uses energy the most.
• Type of business energy tariff - certain supplier’s tariffs have lower standing charges or others have no standing charge at all but, as mentioned above, the cost is very often absorbed by an increased unit charge.
• Contract length - a long business energy contract term means you lock in a fixed standing charge  meaning the standing charge can’t be increased but equally, it can’t be lowered if wholesale energy prices nosedive.
• Postcode - your business location and demand in your area affects the price.

What does unit rate mean in energy?

• The unit rate means how much you will pay, per unit of energy used.
• The unit rate amount varies between suppliers and costs can be affected by your type of meter, your usage and your location.

What is a good unit rate for gas?

To give you an idea of what a good unit rate for gas is, below are the average business gas prices per kWh, with or without the VAT climate change levy (CCL) applied, according to the size of a business:

(Source: BEIS)

Note: The above prices exclude VAT @ 20% which is charged on top of the CCL and are not necessarily ‘good rates’ as they are average rates. Also, businesses that use very little energy meeting the minimal use requirements and who only have to pay a VAT rate of 5% do not have to pay the CCL.

What is a good unit rate for electricity?

To give you an idea of what a good unit rate for electricity is, below are the average business electricity prices per kWh, with or without the VAT climate change levy (CCL) applied, according to the size of a business:

(Source: BEIS)

Note: The above prices exclude VAT @ 20% which is charged on top of the CCL and are not necessarily ‘good rates’ as they are average rates. Also, businesses that use very little energy meeting the minimal use requirements and who only have to pay a VAT rate of 5% do not have to pay the CCL.

Is it better to have a lower standing charge or unit rate?

The answer to this depends on:

• How often your business uses energy
• How much energy your business uses

If there are many days where your business doesn’t use any energy at all (say your business is only open a couple of times a week or at certain times of the year), then a lower standing charge or no standing charge at all is better.

This is because if you have a higher standing charge, the unit rate is lower.

Conversely, if you’re a business that regularly uses a lot of energy, then having a lower unit rate is best, albeit the unit rate is higher.

What type of energy contract do I need?

There are four main types of energy contracts for businesses to choose from:

Fixed

With a fixed contract your kWh rate per unit of energy is fixed for the whole term of the contract but your bills can fluctuate, according to your usage. This type of contract can help businesses manage their cash flow.

Variable

A variable rate contract means your kWh rate per unit of energy can vary, according to market activity. This type of contract can be beneficial if wholesale prices fall but can make budgeting difficult, especially if prices continue to go through the roof.

Rollover

It’s not just the lottery that has one! A rollover contract applies if you do not renew utility contract or switch utility contract before your existing contract expires. Note: When you’re a very small microbusiness, a rollover contract cannot last in excess of 12 months.

Deemed and out-of-contract

This contract applies if you take over a business premises and continue to use the existing energy supplier, or this type of contract can come into play when an existing contract expires that had no provision for what happens on its expiration and did not include renewal terms.

This type of contract is typically the most expensive and it’s therefore better to arrange a new contract with the existing or a new supplier as soon as you lease or buy a commercial premises.

So which contract is best for my business?

Out of all the above contracts, fixed-term contracts are the most popular amongst business owners as they allow a business to budget for their utilities and avoid being overwhelmed by unexpected price hikes. 

To find the best contract for your business, we recommend comparing quotes online or contacting a utility specialist who can compare commercial energy deals on the market for you.