Business Energy Prices Explained

What Determines Business Energy Prices?

Your business energy price is made up of several components. Understanding each one helps you evaluate whether a quote is competitive and where potential savings lie. The main components are: the unit rate (price per kWh), the standing charge (daily fixed cost), wholesale energy costs, network charges, environmental levies, and broker operating costs and margin.

Business energy prices are not protected by a price cap (unlike domestic energy). This means prices can vary significantly between brokers and change frequently based on market conditions. However, once you sign a fixed-term contract, your rates are locked in for the duration.

Unit Rate (Price per kWh)

The unit rate is the price you pay for each kilowatt-hour (kWh) of electricity or gas you use. This is the biggest variable in your energy bill. For electricity, typical business unit rates range from 15p to 35p per kWh. For gas, rates typically range from 3p to 8p per kWh.

Unit rates are influenced by wholesale energy prices (which fluctuate daily based on supply and demand, geopolitics, weather, and fuel costs), your contract length (longer contracts sometimes offer better rates), your usage volume (higher usage can unlock better rates), and your location (network charges vary by region).

When comparing quotes, always look at the unit rate alongside the standing charge. A broker might offer a low unit rate but a high standing charge (or vice versa), and the total cost depends on your usage. For high-usage businesses, a low unit rate matters most. For low-usage businesses, the standing charge has a bigger impact.

Standing Charges

The standing charge is a fixed daily cost you pay regardless of how much energy you use. It covers the cost of maintaining the energy network, supplying your premises, and broker administration. Typical standing charges range from 20p to 60p per day for electricity and 15p to 40p per day for gas.

Standing charges can significantly impact low-usage businesses. For example, if you use very little electricity but pay a 60p/day standing charge, that's £219/year before you've used a single unit of energy. For low-usage businesses, finding a broker with a lower standing charge can save more than finding a lower unit rate.

Some brokers offer contracts with zero standing charges but higher unit rates. These can be beneficial for very low-usage businesses but are usually more expensive for normal usage patterns. We calculate the break-even point for your usage to advise on the best option.

Wholesale Energy Prices

Wholesale energy prices are the prices brokers pay for electricity and gas on the wholesale market. These prices fluctuate based on: supply and demand (higher demand in winter pushes prices up), geopolitics (conflicts and sanctions can disrupt supply), weather (cold snaps increase demand; low wind reduces renewable generation), fuel costs (gas prices affect electricity prices since much UK electricity is gas-generated), and storage levels (low gas storage in winter increases prices).

When you sign a fixed-term contract, your broker locks in the wholesale price at that time for the duration of your contract. This protects you from market volatility — if wholesale prices rise, your rate stays the same. But if wholesale prices fall, you won't benefit until your contract renews.

Timing your contract renewal to coincide with lower wholesale prices can save significant money. We monitor wholesale markets and advise clients on optimal timing for locking in rates.

Other Price Components

Beyond the unit rate and standing charge, your energy price includes several other components:

Network charges: The cost of transporting electricity and gas through the National Grid and local distribution networks. These vary by region and are regulated by Ofgem.

Environmental and social levies: Government-mandated costs including the Renewables Obligation, Feed-in Tariffs, and Energy Company Obligation. These fund renewable energy and energy efficiency programmes.

Climate Change Levy (CCL): An environmental tax on business energy, currently around 0.775p/kWh for electricity and 0.533p/kWh for gas (rates change annually). Some energy-intensive businesses may qualify for reduced rates or exemptions.

VAT: Businesses pay 20% VAT on energy (vs 5% for domestic). Some businesses with low usage may qualify for the reduced 5% rate — we can advise if this applies to you.

Broker margin: The broker's profit and operating costs. This is where competition between brokers creates savings — different brokers operate at different margins.

How to Evaluate Energy Quotes

When comparing energy quotes, don't just look at the unit rate. Calculate the total annual cost: (annual usage in kWh × unit rate) + (365 × standing charge) + VAT + CCL. This gives you the true annual cost and allows fair comparison between brokers.

Also consider: contract length (longer isn't always better), exit fees (check if you can leave early), renewable energy options (often free), and broker reputation. The cheapest quote isn't always the best value if the broker has poor service or hidden fees.

We do this calculation for every client, presenting clear total-cost comparisons rather than just unit rates. This ensures you're making an informed decision based on what you'll actually pay, not just headline rates.