The Complete Guide To Understanding Your Business Electricity Bill

June 20, 2024 by Admin

Regardless of the type of business you own, you’ll undoubtedly be consuming electricity in some capacity. That could be powering vital equipment like computers or machinery, running fridges or coolers to keep food from spoiling on the shopfloor, or simply keeping the lights on throughout the day.

However, while you might be aware of where you’re using your electricity, reading your bill might not necessarily be as clear cut. With so many different acronyms and abbreviations, it can be difficult to understand what you’re paying and why.

At Tariff, we’re committed to making energy as understandable as possible. We’ll break down what you can expect to see on your bills, what the terminology you might see means, and how you can make the best decision for your business electricity.

 

What Makes Up The Cost Of Your Business Electricity?

When you receive your business electric bill, it’s highly tempting to just look at the final figure. After all, that’s what you’ll ultimately be paying, and the amount you’ll need to factor into your budget.

However, we’d encourage you to take a more in-depth at your bill, as there’s often many more charges that make up your bill outside of the electricity you use. Let’s break down some of the key terminology you might see, and what it means for the amount you’ll pay.

 

The Commodity Cost

This is essentially the price you’ll pay for the electricity that your business uses. It’s the cost of the fuel you’ve consumed, without any additional fees or levies added on top.

This will usually be less than obvious on your bill, but it’s crucial in understanding what makes up the cost of your business’ electricity. This commodity cost makes up around 30% of the total amount you pay, with that expected to decrease over the coming years, and as more levies are introduced to push for further switchers to renewable or net-zero energy.

This commodity cost includes two common charges which you’ll see on every bill you pay:

• Unit Cost – This is what you pay for every kilowatt-hour (kWh) of electricity your business uses. This is set by your energy provider, but the government imposed a cap on the maximum a provider can charge per kWh.
• Standing Charge – This is the cost of maintaining the connection to your energy supplier. You’ll need to pay this regardless of how much energy you use.

However, there are multiple, less apparent charges that make up that remaining 70% of your bill.

 

The Transmission Network Use of System (TNUoS)

TNUoS is the cost of getting electricity from a power station (a facility that produces the electricity we use) to a regional distribution station (a more local facility that provides energy to homes and businesses in the area).

This is done via the National Grid, which provides electricity to the entirety of the UK. These additional costs go towards the installation and maintenance of that National Gride, and ensuring the network stays strong and consistent.

 

The Distribution Use of System (DUoS)

DUoS is the part that directly follows TNUoS, in that it covers the cost of getting electricity from a regional distribution station (so, for instance, if your business is based in the North West of England, your electricity will come from Electricity Northwest Ltd.) to your business.

These charges go towards ensuring that there’s minimal disruption to the service you receive, as well as maintaining the integrity and speed of the system.

 

The Balancing Services Use of System (BSUoS)

BSUoS helps to cover any expenses encountered during the production and transmission of energy throughout the network, as well as maintain a good balance between the energy produced and the energy consumed.

The aim with this surcharge is to avoid power shortages through too little electricity, as well as prevent energy going to waste, which can happen if too much electricity is produced.

 

Value Added Tax (VAT)

This is a governmental tax that’s added to everyone’s electricity bills, from homeowners to entrepreneurs. Businesses are usually charged a rate of 20%, in line with the current interest and tax rates.

The only notable exceptions to this are charitable businesses (as these can usually expect some form of tax relief), and exceptionally low-energy users.

 

The Climate Change Levy (CCL)

The CCL is an additional environmental tax that’s specifically designed to encourage lower energy use, and place an increased emphasis on initiatives like renewable energies for businesses.

Suppliers charge a set rate per kWh to cover this cost, meaning that, as a general rule, the more energy that business uses, the higher the CCL costs will be.

 

Contracts For Difference (CfD)

Contracts For Difference, also referred to as the Electricity Market Reform, is a relatively new initiative introduced by the government in 2019, as a replacement for the now defunct Renewables Obligation Tax.

It’s an additional cost that’s designed to support the growing number of low-carbon or net-zero energy providers, and prompt further investment into renewable or green energy projects ahead of the target for net-zero by 2050.

 

What Are The Different Types Of Business Electricity Bills?

Now that we’ve broken down the additional charges you can expect to face on your monthly business electricity bill, it’s equally important to understand that different types of contract you could be on.

It’s easy to assume that your electricity provider will always have you on the contract that’s most relevant for your business type, but it’s absolutely crucial you understand what these contracts mean for you, and how they might impact what and how you pay.

Let’s break down the two most common types of business electricity contracts – fixed and variable.

 

Fixed Contracts

With a fixed or fixed rate contract, your rate per kilowatt-hour (kWh) is locked in for a specific length of time, usually a year. This means that the price of your business electricity won’t fluctuate throughout the year, and you can better budget for what you can expect to pay.

The key drawback of a fixed contract is that they’re not the cheapest, with many providers choosing to price their fixed rates based on projections that might not necessarily come to fruition. However, the stability that a fixed contract provides in spite of this slightly higher price point means it’s often the best choice for a savvy business owner.

 

Variable Contracts

A variable contract offers the antithesis of a fixed contract. In this, the rate per kWh you pay changes to match market conditions and current energy prices, meaning it could rise or fall dependent on factors out of your control.

On the plus side, these contracts tend to have much more flexibility, and don’t lock you into a set length of time, meaning you can switch your business electricity at any time without the worry of expensive cancellation fees.

 

Why Do Business Electricity Bills Increase?

Unfortunately, this is one of those questions without a clearly defined answer. The truth is that there’s a huge range of factors that can impact what you pay for electricity, ranging from global political instability, to a rapidly and inexorably changing climate.

We’ve broken this down more significantly in our complete guide to rising energy prices, but here’s just a snapshot of the different factors that can influence the price you pay for your energy, and what’s right for you and your business’ electricity.

• Increasing Demand – As the world recovers from a global pandemic, and we start to see a return to normality, the demand for energy and power has seen a sharp increase to the levels we saw pre-pandemic. Supply shortages across the gas network (where the UK gets around a third of its electricity from) also meant that demand exceeded supply in many areas.
• Low Levels Of Wind & Solar Power – Cold, cloudy winter months meant that the UK’s usual supply of solar power was diminished, and wind energy (which makes up around 5% of the UK’s electricity supply) was lower than recent years.
• Energy Market Instability – With around 30 energy suppliers collapsing over the last year, there’s been an increasing sense of volatility in the energy market, with many suppliers choosing higher price points to stay sustainable.
• Changed Governmental Support – The previous schemes, which offered businesses a discount subsidised by the government, have now been scrapped, and replaced with new initiatives that decrease the support given to businesses in favour of supporting those with much higher energy usage. This means you’re likely to pay more for your business energy.

Of course, there are numerous other factors that contribute towards the changing nature of the electricity market for businesses, but there are steps you can take to ensure that your energy prices stay at the lower end of the scale.

 

How Can I Reduce My Business’ Energy Bills?

In a landscape that’s often dominated by the changes and rises to energy prices, it’s natural you’d be looking to secure more stability in what you pay, and save some money in the process. Fortunately, with Tariff’s signature business energy switching service, we’re able to take you from your current package to a cheaper, more sustainable offering in a few simple steps.

 

Step 1 – Understanding Your Current Energy Usage

As part of Tariff’s tailormade service, we believe that the first step to finding you and your business the best possible deal is to understand the energy you use, and where you expend it. That’s key to finding the best possible deal for you, and better accommodating your business’ unique needs.

We’ll start by discussing your business with you,  including what services you offer, where you most utilise electricity, and the times of day you’re most likely to be active. It’ll ensure we source the best possible tariff for you, and one that complements your business and its customers.

As part of our net-zero service, we’re exceptionally proud to be pioneering an innovative system called IPSUM. This allows us to visualise the energy you use through a smart dashboard, including real-time statistics on where and how your business is using its electricity.

This works by connecting small sensors to your energy use points, so you can better understand how your devices and equipment is utilising the electricity you pay for.

 

Step 2 – We’ll Source The Right Tariff For You

Next, we’ll complete all of the necessary leg work for you. In our initial discussions, we’ll ensure that we have a clear picture of what your business needs from its energy, and what you’d be looking for in your energy provider.

With that in mind, we’ll explore all the possible options available to you, and earmark a few that we feel would be the best fit. This could be a provider that has strong green credentials, a solid reputation amongst other businesses, or a proven track record of providing a low price point across multiple industries.

We’ll then present all of the options we’ve found to you. We feel this is a crucial part of the process – as much as we’ll have your business’ aims and best interests in mind, you ultimately know your business more than anyone else, and should always have the final say in anything of this magnitude.

You can choose the business energy tariff that most closely resonates with you, and then we’ll proceed with the next step on our behalf.

 

Step 3 – We’ll Organise All The Paperwork

Once you’ve opted for your chosen provider, we can then start the switching process fully. This means arranging any necessary paperwork, and organising anything that needs to be done with your existing provider.

This is where we’ll do most of our work in the background, so you can focus on more important things, like running your business and enjoying your entrepreneurship. It’s a pivotal stage in the process, but it’s one that we’re able to fully complete for you.

The only thing we’ll need from you at this closing stage is a final meter reading that we can submit to your current provider on your behalf, before paying your final bill before the switch is fully completed.