Business energy standing charges and unit rates

What the standing charge is

The standing charge is a fixed amount for every day in the billing period. Ofgem describes it as a fee you pay each day, even if you do not use any energy on that day. If your premises are closed for a month, the standing charge still applies for every one of those days.

Each supply point has its own standing charge, so a business with an electricity meter and a gas meter pays two, and a business with several sites pays one for each meter at each site. Electricity and gas standing charges are set separately.

The standing charge is quoted as an amount per day, and the bill multiplies it by the number of days in the billing period. VAT is charged on it; the Climate Change Levy is not, because CCL is charged per kWh used.

What the unit rate is

The unit rate is the price for each kilowatt hour (kWh) of energy you use. Your consumption for the billing period, taken from your meter readings, is multiplied by the unit rate.

Depending on your tariff and meter, you may have:

• A single unit rate: one price for every kWh, at any time of day.
• Day and night rates: a lower rate in a set off-peak window and a higher rate the rest of the time, as on Economy 7 for business.
• Several time-of-use rates: more than two bands, used on some multi-rate and half-hourly contracts.
• A separate rate for each fuel: gas and electricity are priced separately, even on dual fuel for business.

Climate Change Levy is charged per kWh on top of the unit rate, and VAT is charged on the total. Neither is part of the unit rate itself.

What each charge pays for

The supplier decides how to recover its costs between the two charges, so there is no fixed split. In general:

Ofgem's household guidance lists the same building blocks behind every bill: wholesale costs, network costs, operating costs and policy costs, plus VAT. Business tariffs are not capped, but they are made from the same costs. Our guide to non-commodity costs goes through the network and policy elements one by one.

Why standing charges differ between businesses

Two businesses on the same street can have very different standing charges. The main reasons:

• Region: network costs differ between distribution areas, and Ofgem notes, in its guidance for households, that standing charges vary with where you are.
• Meter type: a standard credit meter, a multi-rate meter, a smart meter and a half-hourly meter each carry different metering and data costs.
• Size of supply: Ofgem's Targeted Charging Review moved the residual part of network costs into fixed charges, and non-domestic sites are placed in charging bands, so a larger site can carry a higher fixed network charge.
• Fuel: gas and electricity standing charges are set separately and reflect different networks.
• Contract and supplier: each supplier chooses how much of its cost to recover through the standing charge, and term length and tariff type affect the offer.
• Commission: if a broker's fee is added to the standing charge, it raises the daily amount.

Because the right balance depends on your use, comparing standing charges alone can mislead. A low standing charge with a high unit rate can cost more for a busy site, and the reverse can be true for a site that is often empty.

Tariffs with no standing charge

Some business tariffs are sold with no standing charge, or a very low one. The fixed costs of supplying the site do not disappear: the supplier recovers them through a higher unit rate instead.

That can suit a site that uses little energy or sits empty for long periods, such as a seasonal unit or a lock-up store. For a site with steady or heavy use, it can mean paying more overall, because the extra on every kWh adds up. Whether it suits you depends on your actual consumption, which is why a quote should be based on real meter readings rather than an estimate.

Void and empty properties also carry a risk of being placed on deemed or out-of-contract arrangements, which our guide to business energy for landlords covers.

How broker commission is added

When a broker or other intermediary arranges your contract, its fee is usually paid by the supplier and added to your prices. Fidelity Energy's terms say its commission is added as an uplift on the unit rate (a p/kWh amount) and/or on the daily standing charge. The estimated commission is set out in your contract documents and varies with how much you use.

Ofgem has required broker fees to be shown in the principal terms of all non-domestic contracts signed from 1 October 2024, and suppliers must provide them on request. When you look at a quote:

1. Check the unit rate and standing charge for each meter.
2. Find the broker fee in the principal terms, and whether it sits on the unit rate, the standing charge or both.
3. Multiply out the standing charge for a year and the unit rate by your annual kWh, so you are comparing totals, not single numbers.
4. Check what happens to both charges at the end of the term.

Forever Communications is paid by Fidelity Energy from that commission. The whole arrangement is set out on how we work with Fidelity Energy.

Working out what the two charges cost you in a year

Single numbers on a quote are easy to misread. To see what a standing charge and unit rate mean for your business, turn them into annual amounts:

1. Standing charge: multiply the daily amount by 365 for each meter, and add the meters together.
2. Unit rate: multiply each rate by the kWh you use in that band over a year. Your bills, or half-hourly data on larger sites, give the split between day and night or time-of-use bands.
3. Add the two to get the energy cost before Climate Change Levy and VAT.
4. Repeat for each quote using the same consumption, so you compare like with like.
5. Check the term and the end date: a quote for a different length of contract is not directly comparable.

For a site that uses little energy, the standing charge can be most of the bill, so it deserves as much attention as the unit rate. For a heavy user, the unit rate dominates and small differences in it matter more.

At the end of a fixed term, both charges can change. If no new contract is agreed, you may move onto a rollover contract, which can be priced higher, or onto out-of-contract prices, which Ofgem says are usually more expensive. Our business energy tariffs guide explains what happens at the end of each tariff type.

How we can help

We act as an agent for Fidelity Energy, an independent business energy consultancy and broker, and introduce you to it. We help you gather bills, MPANs, MPRNs, meter details and consumption so that quotes are based on your real use. Fidelity Energy gets quotes from its network of business energy suppliers and arranges the contract you choose with the supplier, and we can help you read the unit rate, standing charge and commission in each offer.

Not sure whether your standing charges and unit rates fit the way your business uses energy? Contact us with a recent bill for each meter and ask us for a quote. To put offers side by side or change supplier, see our sister site on business energy comparison.