What charges are included in your business energy bill?
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.
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.
Talking of taxes, most companies pay 20% VAT on their business energy bills.
Some business premises are supplied their gas via pipes owned by an independent gas transporter 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.
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.
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.
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.
What gets loaded in at source will not be the same amount that makes it out at the meter. These are known as losses. 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.
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.
Although the Climate Change Levy appears 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.
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.
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.
As of May 2018, there were nearly 400 different energy tariffs available to domestic customers! Many consumers mistakenly believe that all suppliers and tariffs are the same and the only difference between any two is cost. However, there are a number of different tariff types which offer different features and benefits. Some of the most common are listed below.
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