It’s always tricky to determine the exact amount you need to pay for your business bill each month. This is because every business tends to utilize energy differently. And, most business energy quotes are usually customized for each business. Unfortunately, the volatility in the energy market is now making it hard to predict energy prices.
You should remember that electricity for business differs from domestic electricity when it comes to the energy contracts that energy suppliers offer. Business electricity can also be more expensive than domestic electricity. In this article, you will learn about the costs included in your electricity bill.
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The business electricity bill
Several things, such as taxes, standing charges, the amount of electricity your business uses, and government levies all contribute to the overall amount of money you have to pay for electricity. The price you have to pay for the electricity your business utilizes can also be determined by the wholesale price of energy. This refers to the energy rate your energy provider pays for the electricity it supplies your business.
And, if you choose a variable energy plan or you are on an out-of-contract rate, then your electricity price can rise and fall depending on market conditions. Today, there is uncertainty in the energy market which has caused some business owners to pay more than the normal cost for their electricity. This is because some energy providers have increased their out-of-contract energy rates.
Switching to fixed-term energy deals can be the best way you can avoid paying these expensive out-of-contract energy rates. You can also prevent your business from experiencing any future price energy increases.
The costs associated with generating electricity can also affect the amount of money you pay for your business electricity. The high demand for electricity can lead to high electricity generation costs. Remember that the costs for electricity can sometimes change each hour, so a higher electricity demand can cause the electricity generators to pay more money to produce energy and this can increase electricity prices.
This is the reason why it costs more money to operate a business between 9am and 5pm. During this period, there is always a higher demand for electricity in businesses and homes than during the night when few people and businesses use electricity. Also, world events can sometimes have an impact on the cost of the energy bill. For example, there have been recent energy price increases following the conflict happening in Ukraine.
The various charges included in the electricity bill
The key costs that are included in your gas and electricity bills are the unit rate and standing charge. The standing charge is simply a fee that an energy supplier charges every day to cover the expenses they incur when they supply energy to your business premises. This also covers the costs for the maintenance of the national grid.
On the other hand, the unit rate which is measured in kilowatt per hour is a charge that covers every unit of gas or electricity that your business utilizes. For example, if you are on a fixed-term contract, this charge can be set at a specific rate, so it cannot change when the energy prices rise. However, your energy bills can still change, though this depends on the amount of energy your business uses.
The unit rate and standing charge are the two energy costs that you should always check when doing an energy price comparison. These costs can also be broken down even further. This is a good idea so that you can know how they may affect the overall energy costs of your business.
There are several elements that can contribute to the standing charge and unit rate. Some of them are the wholesale costs. Remember that part of the unit rate is the wholesale costs which refer to the cost the energy supplier pays to get the energy that your business uses. You should note that a rise in the costs of wholesale energy can be passed to consumers. Therefore, these increases can reflect in the cost per unit of energy.
A transmission use of systems charge can also affect your energy bill. This charge covers the energy supplier’s costs for maintaining the national grid. This grid is utilized to transport the energy to business premises. In most cases, the cost of the transmission use of system charge can vary, but this depends on the geographical location of your business.
There is also the distribution use of system costs that you need to pay. This charge covers the expenses that your distribution network operator incurs. Remember that the distribution network operator refers to a company licensed to supply electricity in your area. This cost has night and day charges, and maximum supply requirements that apply to larger businesses.
There is a Climate Change Levy which is a tax that applies to each energy unit that a business uses. This levy is there to encourage business owners to adopt energy efficiency practices and lower their carbon footprint. You should note that you can be exempted from the Climate Change Levy, but this depends on the level of activities you take to improve the energy efficiency practices for your business.
Your energy supplier also adds VAT to your business energy bill. VAT is often 20 percent, but there is a chance that you can reduce this figure to 5 percent of the business energy costs. This can happen if your business utilizes less than 145kWh of gas or 33 kWh of electricity each day.
There is also the Feed-in Tariff which acts as an incentive to property owners and business owners who produce energy on-site via small-scale renewable energy generation like wind turbines and solar panels. The energy regulator, Ofgem, charges businesses a levy that can appear as a separate cost on your energy bill.
As you can see, there are various costs that are included in your energy bill. But the most key costs are standing charges and unit charges. Therefore, make sure that the potential energy supplier offers competitive rates before making the switch.