Everything you need to know about your Business Energy Bill
Just like homeowners, businesses require electricity and gas. However, while the current flowing through their sockets is the same, the way power companies bill commercial customers is different. And this can be a source of confusion.
Don’t worry if your business energy bill is complicated: we’re here to help. In this post, you’ll learn how to understand your invoice, the categories power suppliers use to break it down, and roughly what you can expect to pay. So, without further ado, let’s get into it.
Most Important Part of your Business Energy Bill
If your pushed for time and want to keep things high level, the three most important elements of your energy bill to review are:
Measured in kilowatts hours (kWh), this is the price you are charged for gas and electricity depending on the amount you use. The more you use, the more you are going to pay and that is why reducing your energy consumption can really help bring down your bill, but if you are able to start off on a cheaper unit rate, you are going to be paying less for that energy consumption.
Much like a domestic bill, a standing charge is the fixed daily rate you pay your energy supplier regardless of your energy consumption. Different suppliers will have different standing charges and unit rates and switching suppliers can help to reduce your costs.
Contract end date
A key detail is when your contract ends, when you get close to the switching window or end of the contract date then you’re in a position to move suppliers or renegotiate a new deal with the current supplier. It’s always wise to know your contract end date as forgetting and not looking for a new deal will most likely result in your current supplier moving you to a more expensive tariff, albeit a tariff that is not contracted and you can move from any anytime.
The services of an energy broker would manage your contract to ensure the best deal for your business and your contract renewal.
Business Energy Bills Explained
Energy companies break down commercial energy bills into categories. You should see these presented as sections on your invoice. There is a logic to how energy firms present your bill. We will explain each section of the invoice below.
Basic Contact Information
On your bill’s header (or the first page) your energy supplier will present basic contact information. This typically includes:
- The energy company’s contact details: Their name, address, contact details, and so on
- You account number: The code that allows the energy supplier to identify your business
- The invoice number: A code that differentiates one particular invoice from others the energy supplier issues
- The invoice period: Detailing the dates that the charges cover (for example, 01 February to 28 February)
- The invoice issue date: For example 01 March
- Your reference number: A number that your business might have assigned to your account to allow both you and the energy supplier to identify it more easily internally
- Rota disconnection code: A special code that determines your business’s priority for energy during a severe energy shortage. The goal of the rota code is to protect certain services, such as hospitals, from disconnecting during disruptive periods.
In the next section of your invoice, you will find your basic account information. Depending on the energy provider, they tell you:
- Your name and address: For example, Mr Smith, Operations Manager, ABC Consulting Services, London, UK, LS1 1XX.
- Your account status: This indicates when your invoice is due for payment. (For instance, an invoice may say “VAT invoice due 01 April” or “This VAT invoice is due for payment now).
- Payment due date: A date by which you must pay to remain in good standing with the electricity supplier
- Payment terms and conditions: A description of how you arranged to pay when you took out your electricity contract. (For example, whether you chose to pay by Direct Debit, cash, cheque, or bank transfer). You may also see information about the frequency of payments such as “14 days” or “per calendar month.”
- Supply address: This is the address to which you must make invoice payments. Usually, it is the headquarters of the power company.
- Balance brought forward: This shows you any charges (or overpayments) that have been brought forward from the previous invoice period to the current one. (For instance, if you owe £300 from last month, this section will show you any balances brought forward and any payments you’ve made. “Account balance last period” may show -£500. “Payments received” may total £200, so “Total balance brought forward” will equal -£300.
- Important account information: This is usually a generic section that provides information about your bill and services that the energy provider offers. For example, it might include warnings, such as “this bill contains reconciliations,” or may remind you that it is your responsibility to maintain your records.
The invoice summary is a list of the costs and charges that your company faces in total. How suppliers present this section varies slightly. However, many elements are common among all suppliers. Typically, firms present the invoice summary as a table, showing individual elements, subtotals, and then grand totals at the bottom.
Here’s what an invoice summary might look like:
|Supply charges for this invoice period|
|Variable consumption charges for this invoice period||£350|
|Total supply charges||£400|
|Total CCL for this period||£25|
|Total LPI for this period||£25|
|Total volume management charges for this period||£90|
|Total distribution charges for this period||£58|
|Total transmission and agent charges for this period||£90|
|Total reconciliation charges||£90|
|Total additional charges and adjustments for this period||£25|
|Invoice total (excluding VAT)||£803|
|VAT £700 at 20%||£140|
|VAT £100 at 5%||£5|
|VAT £3 at 0%||£0|
|Invoice total for this period (including VAT)||£947|
|Balance brought forward||£200|
|Total to pay||£1146|
Detailed Cost Breakdown
Now let’s explain each of the elements of this invoice in turn.
Supply Charges For The Period
Supply charges for the period list the direct energy-generating costs the supplier incurred in supplying your business with electricity. Carriers break these down into “consumption charges” and “fixed charges” – These are the unit rates and standing charge that we first touched on.
Consumption charges vary with the amount of energy used. In the detailed section, you will find the unit rate or the price per unit of electricity that you use. For example, your electricity provider may charge you £0.100 per kWh. They will then quote you for your usage. For instance, if you used 3,500 units during the invoice period, you would pay 3,500x£0.100 = £350.00. Your bill may break down charges depending on the time of day. For instance, you might see unit prices charged at £0.100/kWH (day) and £0.050/kWh (night).
Fixed charges – also called standing charges – remain the same, regardless of how much energy you use. They cover the power suppliers’ overheads, such as their capital costs. Depending on the level of detail your carrier provides, they may quote you a daily fixed charge. So, for a 31-day period, the daily fixed charge might be £50 ÷ 31 days = £1.613 per day.
Other charges list additional costs incurred by the electricity carrier in supplying you with electricity. We run through each of them below:
Total CCL for this period
This is the Climate Change Levy (CCL) that you have incurred. The government introduced this tax tool in 2001 to encourage companies to improve energy efficiency and move to renewable sources of power generation. Levy rates rise proportionately with fossil fuel use and are charged as a rate per kWh. This tax is applicable to most business types but some are excluded.
Government Policy Costs and Charges
To keep the above invoice example as simple as possible, we’ve only included CCL. However, there are other elements of your electricity bill that go to other government-related items, these are charges that you cannot avoid paying. You may see these charges on your bills depending on your energy supplier contract type, either way, you’re going to be paying them regardless.
- Renewable obligation certificates (ROCs): New ROCs stopped in the UK in March 2017. However, subsidy payments for renewable generation will continue until 2037.
- Contracts for difference (CfDs): These are contracts designed to guarantee a fixed price per MWh for low carbon energy generation. Contract lengths are auctioned by the government and typically last for fifteen years.
- Feed in tariffs (FiTs): The government introduced FiTs to encourage small scale renewable installation. If you have solar or wind generation under 5 MW on your premises, you see subsidy payments on your bills for up to 20 years after installation.
- Capacity Market (CM): These are annual auctions for capacity to be provided by power stations, demand side response and energy storage; which is needed to maintain the security of supply. Procurement takes place four years ahead supplemented with a year ahead auction. The government sets the auctions volumes.
Below are the current charges paid by business users per kWh.
|Climate Change Levy||0.524p||0.541p||0.554p||0.559p||0.568p||0.583p||0.847p|
|CfD Operation Levy||0.000p||0.000p||0.000p||0.005p||0.005p||0.005p||0.006p|
Total LPI for this period
LPI stands for “late payment interest.” You’ll pay this fee if you have outstanding balances from previous periods. Power supply companies will sometimes break down LPIs into high and low rates, charging you different amounts depending on how overdue you are. They may also charge late payment collection fees.
Total volume management charges for this period
Volume management charges are charges that you incur for going over the volume tolerance levels agreed in your contract’s terms and conditions. For example, power companies may specify a 5% to 50% volume tolerance percentage and then charge you for each instance you fall outside of the acceptable range. In the above example, the total cost of these breaches was £90. This might break down as two £45 fees for separate incidents during the invoice period. These volume management charges are closely linked to take and pay clauses in energy contracts.
Total Distribution charges for the period
There are other non-commodity electricity bill charges that are common on your energy bill. These are Transmission and Distribution Non-Commodity Costs and comes from the use and maintenance of electricity transmission and distribution (T&D) system. These are broken down into DUoS, TNUoS and BSUoS.
Distribution Use of System (DUoS) charges
Seen as ‘Total Distribution charges for the period’ on the invoice, these are costs you’ve incurred by using the network operator’s distribution system, including reactive power and availability charges. to distribute electricity to your premises.
Total transmission and agent charges for this period – (TNUoS) and (BSUoS)
These charges relate to external agency and transmission charges your power provider has incurred to provide you electricity and needs to pass onto you. They will usually break these down into two sections:
- Balancing Services Use of System (BSUoS): There are costs relating to the day-to-day operation of the transmission system, for balancing the grid. Some suppliers provide customers with the option of having these costs split and shown separately from their wholesale price.
- Transmission Network Use of System (TNUoS): These charges are made by the system operator for use of National Electricity Transmission Systems (NETS). They are cost associated with transmitting electricity from power stations to grid supply points via the high voltage (HV) transmission network.
An additional section – transmission network use of system reconciliation – shows you your charges based on forecasts and your actual charges. You will usually only see this section on your bill once per year.
Total reconciliation charges
This section details ad hoc charges applied to your account, based on meter readings. Reconciliation charges tend to be more common among customers on flexible than fixed contracts.
Total additional charges and adjustments for this period
This section provides a summary of all of the extra fees that your business might face. These include:
- Additional service charges
- Site removal fees
- Early termination fees
- Metering costs
Most energy companies supply smart meters as standard. However, they may also itemise this option on the bill to recover their costs.
Your VAT total is the total amount of value added tax (VAT) you will pay on your business electricity invoice.
You will see on the invoice summary example above that we have broken the VAT total into three parts reflecting different rates. Most UK businesses pay 20% VAT on energy bills. However, how much you pay ultimately depends on the amount of electricity that you use. If you use less than 33 kWh of electricity (or less than 145 kWh of gas) per day, then you will pay at the lower rate of 5%.
The example bill breaks down VAT charges into three brackets. This is purely for illustrative purposes to show you what your bill might look like depending on your business’s energy usage. If you partially use electricity for domestic or charitable purposes, part of your invoice may qualify for lower tax rates, as shown above.
Total To Pay
The last line is the total amount that you need to pay. This is the summation of the following subtotals:
- Invoice total (excluding VAT)
- VAT total
- Total balance brought forward
In the above example, you can see that we have summed the £803 invoice total (excluding VAT), the £144 VAT total and the balance brought forward of £200, bringing the total to pay for the period to £1147.
How Much Should A Business Energy Bill Cost In The UK?
There are many variables that could affect your invoice totals. These include your industry, the intensity of production and the geography of the area in which you operate. Generally, though, the most important determining factor is the size of your company.
Before Energy Crisis Average business gas prices
|Business Size||Annual usage||Price per kWh||Standing charge||Avg. annual cost|
|Micro business||5,000 – 15,000||4.0p||32.0p||£516|
|Small business||15,000 – 30,000||3.8p||30.0p||£965|
|Medium business||30,000 – 65,000||3.5p||28.0p||£1,502|
|Large Business||300,000 – 650,000||3.5p||28.0p||£15,020|
Before Energy Crisis Average business electricity prices
|Business Size||Average annual usage (kWh)||Average price (per kWh)||Standing charge (daily)||Average annual price|
|Micro business||5,000 – 15,000 kWh||13.2p – 14.5p||23p – 27p||£650 – £1,800|
|Small business||15,000 – 30,000 kWh||12.4p – 14.1p||23p – 27p||£1,900 – £2,900|
|Medium Business||30,000 – 50,000 kWh||12.2p – 13.3p||23p – 27p||£3,300 – £5000|
|Large Business||300,000 – 500,000 kWh||12.2p – 13.3p||23p – 27p||£33,000 – £50,000|
Naturally, the larger the business, the greater its demand for electricity and, therefore, the higher its costs. If you notice that you’re paying above the average compared to the benchmark figures above (and there is no good reason why), then you may want to consider switching providers. You could get a better deal elsewhere.
Also as you can see the larger the organisation and the higher the consumption, the more willing the energy supplier is to offer an economy of scale on the unit rate and standing charge.
These example prices were fairly standard and universal across the industry up until the current energy crisis that has fallen upon us. With a shortage in supply and persistent and increasing demand prices have risen dramatically.
Which Charges Don’t Electricity Companies Include On Your Business Energy Bill?
While there are a bunch of charges you’ll see on your energy bill, there are also several items that you won’t. Critically, though, these costs actually determine how much you ultimately pay so, from a business perspective, it still helps to know what they are.
Losses refer to energy losses in electricity distribution. Unfortunately, due to the physics of power generation, not all of the energy created in power plants winds up as usable electricity for your business. Instead, much of it is lost, either as waste heat in the power generation process, or when distributed via the National Grid. Generally, the further electricity must travel from its source, the greater losses will be, and the more you will pay.
Your energy bill may be made up of costs your energy provider pays to buy your gas and electricity from wholesale suppliers depending on the contract type. Business customers on fixed contracts can shield themselves from input price volatility over the remaining period of their contract. However, the price they pay in the next contract period will reflect changes in underlying wholesale prices. Whereas a pass-through contract will include the wholesale costs on your energy bill as in our example invoice.
To ensure you don’t run out of gas or electricity during your contract, energy suppliers provide the energy they expect you to use in advance of your contract starting. In a fixed contract, if your consumption is a lot lower than what you actually purchased, then you might be in a position where you are overpaying because you will be charged based on what the energy supplier purchased for you regardless of at the start of the contract so they can cover any potential loss as they may have excess energy purchased otherwise, there are options to resolve this known as blend and extend.
These Wholesale energy prices for gas, coal and oil vary considerably over time. Since power suppliers use these inputs to generate electricity, that affects the price their business customers pay. If gas prices go down, that lowers the cost of energy generation. If they go up, the reverse is true, as we’ve seen with the recent energy crisis.
These wholesale costs that you may see in your invoice were mentioned above and are:
- Distribution Use of System (DUoS)
- Balancing Services Use of System (BSUoS
- Transmission Network Use of System (TNUoS):
Supplier margins – or profits – are implied in the price that you pay, but the energy company will rarely spell them out. Take fixed charges, for instance. The power supplier might charge you £50, but the true cost of maintaining their fixed plant and equipment could be £40, implying a £10 profit.
Margins at electricity companies are generally quite low, though. Statista reports that profit margins at Great Britain’s power utility companies hover around 0% to 4%.
An Energy Broker helps you to secure a contract that is in the best interest and best fit for your business. As remuneration for their services, an energy broker will take a commission on the total cost of energy that you use. Typically, commission rates vary by broker, though unit rates range from .05p to 5p per kilowatt-hour. At PES, we regularly perform market research to check that our rates are competitive and lower than the market average.
In the bill breakdown above, we hinted that power companies have to pay other businesses in the industry for use of their services. Some of these charges may appear on your bill (such as use of NETS), but many don’t.
To advance power supply systems and the network, suppliers have to incur capital costs. This is where they borrow money from the markets and then use it to upgrade their services. They then use revenues from customers to pay lenders back, both principal and interest. Again, power companies roll these costs up into the charges for customers.
The Bottom Line
Electricity bills are a major component of business costs. Therefore, it pays for company executives to understand what they mean line by line.
Don’t fall prey to automatic renewals. Instead, review your energy bill every year, seeing if you can get a cheaper, better deal elsewhere.