DCP228 and Business Electricity
What is DCP228? DCP228 is a regulation to be introduced by Ofgem in April 2018 which will change the way busin...Read More
A standing charge is a fixed daily cost within that remains constant regardless of how much gas or electricity you use. These are included in energy tariffs to cover the costs of supplying your business with energy, including taking meter readings and the measures behind keeping your business connected to the gas or electricity network.
Some tariffs do not include standing charges, but this does not necessarily mean they are cheaper. In many cases, the costs usually covered by a standing charge are factored into the amount charged per unit of energy. Businesses are typically charged a higher price per unit of energy until the amount they would have paid in standing charges is paid.
It is usually more cost effective to go with a tariff that includes a standing charge for your gas and electricity. However, if you are a business who uses a minimal amount of energy, a tariff with no standing charge may work well for you.
The unit rate is the price paid per unit of gas and electricity used. So for example, a company using 100,000kWh of electricity per year at a unit rate of 13p would be charged £13,000. The unit rate factors in other costs to the standing charge such as transportation, but does not include costs such as VAT or the climate change levy (CCL). Unit rates vary depending on a number of factors such as your energy tariff, your chosen payment method, and your location.
Before selecting a gas and electricity tariff for your business, you should compare the total costs of the contracts you have been quoted to see which would work out as the most cost-effective for your usage.
Our examples show how you can easily compare a tariff with a higher standing charge but a lower unit rate, and a tariff with a lower standing charge but with a higher unit rate.
Standing charge – 25.5p per day Unit Rate – 13.04p per kWh
You have been offered a standing charge of 25.5p per day. Over the course of the year, the amount you will be charged for this standing charge is 0.255 (pence per day) X 365 (days per year) which equals £93.075.
Your unit rate has been quoted at 13.04p per unit of energy you use in a year and your business’s annual electricity consumption is 10,000kWh. Your total unit rate charges for the year is 0.1304 (pence per kWh) X 10,000 (kWh consumed in a year) which equals £1,304.
Your total bill (excluding VAT and CCL) for the year in this tariff is both the standing charge and unit rate totals added together which will be £93.075 + £1,304 = £1,397.07 (rounded down from £1397.075).
Standing charge – 19p per day Unit Rate – 17p per kWh
You have been offered a lower standing charge of 19p per day which makes the total cost for £69.35 per annum.
But in this case, your unit rate is likely to be higher. So a unit rate of 17p per kWh at the same consumption of 10,000kWh per year is equal to £1,700.
These two totals combined make £1,769.35 which is £372.28 more expensive per year than the standing charge and unit rate featured in Example 1.
Our examples show why it is important to compare the price differences between tariffs with higher and lower standing charges as unit charges can heavily impact the total cost of your business’s gas and electricity bills. It is important to remember that just because the standing rate is the cheapest, it doesn’t necessarily mean its the best choice for your business’s needs.
Our energy switching team at SwitchMyBusiness.com can help you find and compare the most suitable energy tariffs for your business so you can be sure that you are getting the best deal for your gas and electricity usage. Use our online comparison service or call us directly on 0800 411 8830 to start comparing the tariffs from a variety of suppliers today!
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