Understanding Business Energy Bills
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Last updated: 20 May 2020
When it comes to managing your business, every penny counts. That’s why it’s vital that you keep up with your gas and electricity bills. Many business owners are paying too much for their energy without even realising, simply because they don’t understand their bills. Spending just a couple of minutes checking out your bills can really pay off. The three most important things to take note of are:
- Your standing charge.
- Your unit rate(s).
- The date on which your contract ends.
What to Look Out for on Your Energy Bill
Read on to find out how to know if your business energy bills are too high, by looking at the different elements that make up your bill.
Your standing charge rate is what you pay each day for the supply of energy to your business, regardless of how much energy you use. Business electricity deals
will always have a standing charge, but not all business gas deals
This is how much you pay per kilowatt hour (kWh) of electricity or gas that you use. Having the lowest unit rate possible doesn’t always mean that you’re paying the best price for your energy, but rather it depends on how much energy you use. If you’re business is a heavy energy user, then having a low rate is vital. However, if it doesn’t use a lot of energy, then having a low (or no) standing charge with a higher unit rate might work out better for you.
Contract End Date
This is the point at which your current fixed price period ends. It’s important to note when this is, so that you will have plenty of time to negotiate a new energy deal with either the same supplier or a new one. Make sure that you compare business energy deals
before your contract end data to ensure you get the best rate possible. Business energy contracts are often lengthy, lasting on average about four years. So, it’s important to make sure you’re happy with the tariff that you’re on.
Most companies have to pay 20% VAT on their business energy bills. However, if you use less than an average of 33kWh of electricity and 145 kWh of gas each day, then you should only have to pay 5%. This reduced rate also applies if your business is both domestic and residential, for example if you own a B&B, campsite or a care home.
Climate Change Levy (CCL)
The Climate Change Levy
(CCL) is a government levy which you must pay for every unit of non-renewable energy that your business uses. It aims to encourage commercial customers to increase their energy efficiency and reduce their business’ emission levels.
The CCL doesn’t apply to any renewable energy
that your business uses. If you’re eligible for discounted VAT, you would probably also qualify for immunity from the main rates of the CCL.
But if you aren’t eligible for immunity, you can receive a discount on CCL tax by signing a Climate Change Agreement (CCA). The terms and conditions of a CCA mean that when you sign, you must make some alterations to your business to reduce energy usage and emission levels. Signing a CCA can therefore help to cut your bills both through increased efficiency, and by cutting out the CCL charge.
Some businesses have their gas supplied through pipes owned by an independent gas transporter (IGT) instead of the normal choice of National Grid Transco. This might not be obvious to you as you wouldn’t assume that you’re being supplied via a different pipe network, and it can mean that you’re paying higher prices than you otherwise would.
If your premises are served by an IGT, you’re limited in your choice of gas suppliers. Therefore, it’s crucial to know what your circumstances are and how you can best resolve them.
Smart Meter Charges
Some energy suppliers
provide smart meters
as standard, or you may have chosen to have one installed yourself. If you don’t currently have one, it can be worth incurring the extra charge because they can help you to increase your energy efficiency. Their accurate and regular readings can improve your cash flow through more accurate billing.
There are a number of challenges involved in getting your energy from its source to your energy meter. The costs involved mount up to as much as 50 percent of the average business energy bill.
The price of gas changes every day, and every half hour for electricity. Businesses are protected from this price volatility
because their suppliers set the ‘retail’ unit prices of gas and electricity above the wholesale price.
Transmission and Distribution
The further you are from wherever your energy is generated or procured, the more it costs to transport it to you. Not only does the cost of transmission need to be accounted for in your bill, but also the cost of upkeeping the transport system itself.
The transport of energy isn’t that efficient, so suppliers also have to account for energy losses in transmission. The further your energy has to travel, the greater these losses are. So, if you live remotely from your energy source, this will fall more heavily on you.
The network of pipes, wires, companies and regulators is incredibly complex, and all of these things cost money. Not only does this network need to be maintained, but it needs to be future-proofed. In other words, we have to make sure the current network will be able to supply the population well into the future. So, all business energy bills account for cost recovery, allowing this cycle of improvement and maintenance to carry on.