If you’d like to reduce your business energy bills, the first step is to find a tariff with a lower unit rate. However, it can be difficult for businesses to figure what their energy prices per kilowatt-hour (kWh) should be. In this guide, we’re going to consider the average current unit rates, demonstrate how your business could lower its energy costs and use a business electricity comparison to help optimise your charges.
How does the business energy market work?
The business energy market is similar to the domestic market, although there are a couple of differences. Businesses pay VAT on energy at 20%, while domestic customers pay a reduced VAT rate of 20%. In addition to paying more VAT, businesses are also subject to a number of green taxes, including the Climate Change Levy, or CCL for short.
Understanding kilowatt-hours (kWh)
A kilowatt-hour is a term given to a unit of energy. Energy suppliers use kilowatt-hours to calculate your energy bills. 1 kWh equates to the approximate amount of energy required to power a desktop computer for three hours. Your bill should clearly and legibly highlight how much your business is paying per kWh, as well as how much energy your business is using.
Wholesale electricity rates
Wholesale energy rates refer to the absolute lowest energy rates available if your business we're able to purchase energy directly from the companies which generate it. The wholesale price of energy varies from week to week. In recent years, wholesale energy rates have witnessed something of a downturn. For example, wholesale electricity cost around 6p per kWh in 2018, compared to just 3p per kWh in 2020.
Most businesses are required to purchase energy from a retail organisation known as an energy supplier. General retail principles mean that you can expect to pay approximately double the wholesale price for a product – and energy is no different.
Over the past 12 months, small-medium enterprises have paid between 13p and 17p plus VAT per kWh for electricity. However, there are additional costs to pay on top of unit rates, including a standing charge. It’s worth doing a price comparison before switching suppliers – this is because some energy companies will offer low unit rates per kWh, but with a higher-than-average daily standing charge rate.
Typical annual small business energy rates
Your annual energy costs will vary dependent on the type of business you operate and the industry you operate within. Small-medium enterprises typically use somewhere in the region of 15,000 – 20,000 kWh of electricity each year. Below is a small breakdown of the average annual electricity costs based on business type:
• Restaurant: £3,070
• Small Farm: £2,220
• Hair Salon: £2,180
• Café: £2,110
• Dental Surgery: £2,175
• Newsagent: £1,830
Does the size of my business affect energy rates?
There is currently no standard price for energy per kWh in the UK. It can, therefore, be difficult for businesses to determine what they should be paying in relation to how much energy they use. In general, businesses benefit from lower unit rates and standing charges based on how much they use. For example, a micro-business which uses 8,000 kWh of energy could expect to pay a unit price of 16.7p per kWh, plus a daily standing charge of 27.4p per day. Overall, this would work out at £1,439 per annum.
A large business which consumes ten times the amount of energy per year (80,000 kWh) will be able to access sufficiently cheaper rates. On average, large businesses pay in the region of 12-13p per kWh, with a daily standing charge in the region of 26.2p per day. Overall, the owner of a large business could expect to pay in the region of £10,439 per annum.
However, it’s worth noting that kWh rates vary dependent on the supplier you choose, which could help you net some significant savings. It’s a good idea to compare quotes from business energy suppliers to your energy bill from the previous year, instead of looking at new quotes side-by-side.
Other factors which affect business energy rates
The type of business you own will dictate your daily consumption patterns. Not all businesses operate on a 9-5 basis from Monday-Friday. Businesses which consume energy in the evening and weekends are able to access different kWh rates than those which cease operating at 5 pm every evening. Rates are usually lower for businesses which operate outside peak hours, as the demand on the network is lower during these periods.
If you receive electricity and gas under a dual fuel contract, you may find that you’ll be able to pay slightly lower rates for each. This isn’t always the case though, so be certain to check for single and dual contracts before switching to the best possible deal.
The length of your contract could also determine how much your pay, both in terms of unit charges and daily rates. On average, each year added to your contract will add an additional 6% to unit costs, with between 2 and 6% being added to your standing charge over the same period.
Conclusion: it pays to switch
Business electricity suppliers are generally more likely to offer new customers a better deal than existing ones. It’s therefore important to use comparison tools to check for the cheapest business electricity rates in your area. Regularly keeping an eye on your energy outgoings could help your business to save hundreds of pounds every year.
Business electricity rates: FAQ
What is the average price for business electricity in the UK?
On average, businesses can expect to pay 13.3p per kWh, with an average standing charge of 27p per day.
Which supplier has the best business electricity rates?
Costs can vary dependent on your consumption amount, meter type, business type and location. The easiest way to access the cheapest business electricity rates is to compare rates in your area using our free tool.
Are business electricity rates cheaper or more expensive than domestic rates?
While standing charges and unit rates are broadly the same for business and domestic customers, businesses are required to pay additional taxes such as the Climate Change Levy. These taxes can add over 30% onto business energy bills.