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Comparing the standing charge and unit rate

The standing charge and unit rate are the two important comparisons that you need to make when deciding which business energy contract is the most suitable for you.

A standing charge is a fixed daily cost which doesn’t change, regardless of how much electricity or gas you use. The standing charge covers the costs of supplying you with energy, including maintenance, meter readings and the logistics of keeping you connected to the network.  Some business tariffs don’t have a standing charge but this doesn’t mean that they are a better option. Generally on these tariffs you pay more for the first so-many units used until the equivalent cost of the standing charge has been reached. After this point the unit rate will usually go down. In most cases, it’s more cost effective to choose a plan with a standing charge. However, if you have a building that needs very minimal heating, then a tariff with no standing charge may work for you.

Even if your plan doesn’t have a standing charge, you may still see it listed on your bill.

The unit rate is the cost for each unit of energy used. It includes other costs such as transportation but doesn’t include costs such as VAT or the climate change levy (CCL). Your unit rate will vary based on your tariff, your payment method, and where in the country you are located.

How can I compare the standing charge and unit rate?

Let’s say that you have been offered a standing charge of 26.03 pence per day. The amount this will cost you over the course of a year is 0.263 (pence per day) X 365 (days per year). This gives you an annual cost of £99.995.

Then you need to work out the cost of the energy you use each year. Let’s assume the unit rate you have been quoted is 12.03 pence per kwh and your consumption is 10,000 kwh per annum. This will give you an annual cost of £1,203.00.

Therefore your total bill for the year will be £99.995 + £1,203.00 = £1298.995 (rounded down to £1298.99) – this is before other costs such as VAT and the CCL are added.

However, you may be offered a lower standing charge, for example 18 pence per day, which works out at £65.70 a year. But the unit rate may be higher e.g. 18 pence per unit for the same consumption of 10,000 kwh a year. This will work out as £1,800 making a total cost of £1,865.70 a year.

So, even though the standing charge is lower the higher unit rate means the total cost for the year is more. It means that if you have a very low consumption it may be better to compare unit rates rather than the standing charge.

Your personal switcher will be able to advise you on which tariff will be the most suitable for your business needs. Remember, just because it’s the cheapest doesn’t mean it’s the right one for your business.

For more information on business electricity visit our electricity page.

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