Electricity tariff commercial: how business tariffs work

What is the average electricity tariff in the UK?

The supplied Ofgem guidance does not give an average commercial electricity tariff, but it does explain that a tariff is made up of a unit rate for each kWh and a daily standing charge. The price cap does not protect people who have a business energy contract. ^[1]

A business energy review is one place to start, and the guide to business electricity charges covers what a bill includes.

A tariff is the price agreed for the energy a business uses. It is made up of a unit rate, charged for each kWh, and a standing charge, charged each day. Two offers can look very different on the unit rate alone and similar once the unit rate and the daily standing charge are read together against the site's expected usage.

Is there VAT on commercial electricity?

When comparing quotes, a business can ask its supplier whether each quoted unit rate and standing charge includes VAT, so that offers are compared on the same footing. A business can ask its supplier whether a quoted unit rate and standing charge include VAT, so that offers are compared on the same footing.

Comparing offers when moving is covered in the guide to switching business energy supplier.

Which tariff types might a business see on a quote?

The business energy contract guidance sets out fixed-rate contracts, variable-rate contracts, deemed and out-of-contract rates, and flexible contracts as the types of business energy contract. ^[2]

With a fixed rate, the price is set for a period of time. With a standard variable tariff, the price can go up or down based on things like the cost of buying energy on the open market. With a multi-rate tariff such as Economy 7, one rate applies in a specified off-peak period and another, more expensive rate applies in peak hours.

The standard variable tariff is the type protected by the domestic price cap. A business that sees one of these names on a quote can check whether the arrangement is a domestic tariff or a business contract.

What makes up the electricity standing charge?

The standing charge is a fee you pay each day, even if you do not use any energy on that day. A site that is shut for a few days therefore still has the daily charge on its bill.

A tariff's costs are calculated from wholesale costs, network costs, supplier operating costs, the supplier's earnings before interest and tax, policy costs, the type of meter and how the bill is paid.

In the price cap, the standing charge is calculated from how many people live in the region, how much energy is used there on average, the amount of energy the supplier needs to buy and the cost of building and improving the energy network. That is why the daily charge differs by region.

What is the average standing charge for business electricity?

The Ofgem guidance used here gives no average standing charge for business electricity, so no business figure is quoted. The charge depends on the contract a business agrees with its supplier.

Fixed rate contracts fix the price of unit rates and standing charges for the length of the contract. ^[3] With a variable-rate contract, the price paid for energy can increase or decrease during the contract period.

On a quote, it helps to check the expected usage, the unit rate for each kWh, the daily standing charge, the contract length, whether VAT is included and whether any broker fees are in the price. A low unit rate can sit alongside a higher daily charge, and a site that uses little electricity feels the daily charge more.

Which contract types affect tariff comparison?

Before signing, a business can check what type of contract it is, how long the term is, and whether broker fees or commissions are included in the price. It can also ask what happens at the end of the term.

Deemed rates are usually higher than negotiated contract rates, and a business is put on a deemed contract automatically when it moves into new premises without arranging a formal contract or if its energy supplier goes out of business. Some suppliers move a business onto out-of-contract rates if its fixed-term contract ends without a new deal being agreed, and these rates are usually more expensive than fixed-term contracts. ^[3]

Flexible contracts, sometimes called structured contracts, are suitable for large businesses that use a lot of energy. A business that works from home is probably on a domestic energy contract, so it is worth checking with the supplier to make sure.

A business qualifies as a microbusiness with fewer than 10 employees and an annual turnover or balance sheet total of no more than £2 million, and can also qualify by using up to 100,000 kWh per year of electricity or up to 293,000 kWh per year of gas. Microbusinesses have extra protections when arranging or renewing a contract.

Brokers charge for their services, and some charge an upfront fee while most are paid a commission by the energy supplier chosen.