The Bionic guide to understanding business energy bills
Business energy bills can be tricky to understand, but it’s worth getting to know your way around them as they contain loads of useful information that can help you get a handle on your costs and figure out ways to cut your energy usage and save money.
Here’s more on understanding your business energy bills, including the main costs you need to look out for before comparing business energy deals and switching suppliers.
How are business energy bills calculated?
You might think your business energy bills are worked out by simply looking at the amount of energy you use in a month, but there's more to it than that. The amount you're billed each month will depend upon the following:
- The amount of energy you use - The number of kWh of energy you use will be multiplied by the unit rate you pay on your current tariff. For example, if you use 100 kWh of electricity in a month at a unit rate of 4.5p per kWh, you'll be charged £45 for that month's usage.
- The standing charge - This is a flat daily charge that you pay regardless of how much energy you use. This rate will be multiplied by the number of days in the billing period. For example, if your standing charge is 45p per day and the billing period is a 31 day month, you'll pay £13.95 in standing charges.
- Taxes and levies - Additional charges like VAT and the Climate Change Levy will be added to your bill.
If you're eligible for any discounts, such as the reduced 5% VAT rate, this will also be shown on your bill and work towards the total amount you need to pay.
What costs should you look out for on your business energy bill?
The format of your bills can vary depending on who supplies your business gas and electricity. This can make it difficult to find the information that’s most relevant to you and your business, but there are three key sections that should be included on most bills:
- A breakdown of how much you’re being charged
- The amount of energy you’re using (measured in kWh)
- Your contract end date and information on your switching window
As a business owner, the amount you’re being charged for gas and electricity will most likely be your primary concern, so here’s an example British Gas business energy bill on which we’ve highlighted the costs that make up the total you pay each month.
If you’re with another supplier, your bill may be laid out slightly differently, but all of the same information should be on there. If not, you should get in touch with your supplier.
1. Outstanding balance from previous bills - This figure indicates if you have any outstanding balance from previous bills, but be aware that this can vary depending upon the time of year. If, for instance, you set up a direct debit in the warmer summer months, when energy consumption levels will be lower, you might find that the amount you’re paying isn’t enough to cover your energy consumption in the winter. If this is the case, you can fall into debt with your supplier and might get hit with a huge bill to make up the shortfall.
2. Balance from this billing period - This cost indicates how much you are being charged for the energy that you have used during this billing period. This is broken down into the following two charges:
- Unit rate - Measured in kilowatt-hours (kWh), this is the amount you pay for each unit of gas or electricity you use.
- Standing charge - This is a flat daily rate to cover the cost of getting the energy to your property and is charged regardless of whether or not you use any gas or electricity.
For more information on the charges listed above, check out Bionic's guide to business energy tariffs and deals.
3. Total amount owed - This is the figure that really jumps out, especially if you’re on an expensive energy deal, as it shows how much you must pay in total, including your previous balance, charges from the current month, as well as VAT.
4. Breakdown of charges - For a more detailed view of how your charges are calculated, your supplier should provide a detailed breakdown on your bill. As an example, consider a multi-rate contract where cheaper rates are offered during off-peak hours. In this instance the breakdown will show how your usage is divided between the two different rates. If you find that you use very little energy during the cheaper off-peak hours, then perhaps there’s a better type of business energy contract suited to your business.
What other information should you look out for on your business energy bill?
Your bill can also act as a reference point to quickly determine if you’re on a good deal – provided you know what to look for. Here are some of the key things to keep an eye out for:
5. Billing period - This is the period that you are being billed for, from the date that your last bill was sent to a few days prior to receiving your current bill. Although this is normally based on either a monthly or quarterly cycle, you might be able to get your billing period changed if you’re unhappy with the length of it.
6. Account number - Your account number can usually be found somewhere near the top of your bill, and is used by your supplier to identify you as a customer. It’s handy to make a note of this, as you’ll need it when contacting your supplier directly
7. Contact details - If you need to query any aspect of your account or make a complaint to your supplier, you can find contact details on your bill. Most suppliers will also include separate contact details depending on your query type. For example, if you wanted to inform your supplier that you’re moving premises, a separate contact number should be listed.
8. Contract information - Somewhere on your bill, your supplier should indicate the details of your current contract, including:
- The name of the plan that you’re on
- When it is due to renew
- A contact number to discuss your plan.
Your supplier should write to you between 60 and 120 days’ prior to your contract’s end date to let you know it’s due to expire, but it’s always good to keep this date in mind so you have time to run an energy price comparison. If you’re short on time, our tech-enabled energy experts can help, and take away the hassle of searching the market by doing it for you. They will compare the best deals from our trusted suppliers.
9. Your reading type - Your bill can be based on two different types of reading:
- Estimated readings – Used if you haven’t provided your supplier with a meter reading in some time.
- Actual readings – More accurate, and based on a recent meter reading. If you’re on a half-hourly meter or smart meter, your bill will be based on accurate readings that are automatically sent from your meter to your supplier.
It’s worth noting that estimated charges can leave you paying too much, or not enough, for the energy that you’re using. It’s recommended that you provide your supplier with actual meter readings at least once every six months, but preferably once a month.
10. The pay-by date - This is the final date by which the bill needs to be paid, and can usually be found underneath the breakdown of costs. If you fail to make a payment by this date, then your supplier may add on a late payment fee. Keep in mind, paying your business energy bill by cheque, or post, requires additional time, so you should keep this in mind when paying using these methods.
11. MPAN or MPRN number - The MPAN is a 21-digit number that can be found on your electricity bill, while the MPRN is between six and ten digits long and will be on your gas bill. You may also find your meter serial number is shown on your bill, close to the MPAN or MPRN. If not, you can easily find this number on the meter installed at your premises. The MPAN, MPRN and meter serial numbers are all used by suppliers to quickly and easily identify the meter at your property.
What costs are included in my business gas and electricity bills?
The two main costs that make up your business electricity and gas bills are the standing charge and unit rate.
What does ‘standing charge’ mean?
The standing charge is a fee that is charged daily to cover the cost incurred by the supplier to supply energy directly to your premises, as well as upkeep costs for the national grid.
What does ‘unit rate’ mean?
Measured in kilowatt-hours (kWh) the unit rate is a charge that covers each unit of electricity or gas that your business uses. If you’re on a fixed rate deal, this charge is set at the agreed rate (meaning it won’t change as energy prices increase, as on a variable deal) but your bills will still fluctuate, depending upon the amount of energy you use.
The standing charge and unit rate are the two costs that you need to look out for when running an energy price comparison. They can be broken down even further, and doing so can help you better understand how they can impact your overall business energy costs.
The main elements that contribute to your unit rates and standing charge are:
- Wholesale costs - Part of your unit rate, this cost is not paid by you directly, instead it refers to the amount that business energy suppliers will pay to acquire the energy that you use. It’s worth keeping in mind that increases in cost on the wholesale market are traditionally passed on to customers and these increases are usually reflected through your cost per unit.
- Transmission use of system charges (TNUoS) - Your TNUoS charge covers the supplier’s expense for maintaining the national grid, which is used to transport energy to your premises. Generally encompassed by your standing charge, the cost of your TNUoS can vary depending on your business’s geographical location.
- Paying for distribution use of system (DUoS) - This charge covers the costs incurred by your Distribution Network Operator (DNO) – a company licensed to distribute electricity in your area – and includes day and night charges, as well as maximum supply requirements for larger businesses.
- Climate Change Levy (CCL) - The Climate Change Levy is a tax on each unit of energy that commercial customers consume. The levy is designed to encourage businesses to improve their energy efficiency and reduce their carbon footprint. It is possible to become exempt from the CCL, but this is subject to the level of action you have taken to improve your energy efficiency.
- VAT - VAT is added to your business energy bill by your supplier. VAT is usually charged at 20%, but it is possible to reduce this figure to as little as 5% of your business energy costs if you use less than 33kWh of electricity or 145kWh of gas per day. For more information, check out Bionic’s guide to VAT on business gas and electricity.
- Feed-in Tariff (FiT) - The Feed-in Tariff (FiT) was introduced as an incentive to businesses and property owners who generate energy on-site through small scale renewable electricity generation, such as solar panels and wind turbines. Ofgem, the energy regulator, charges energy companies a levy and this might show up as a separate payment on your bill.
- Renewable obligation (RO) - The renewable obligation UK businesses are charged is one of a number of government initiatives to help meet climate change objectives by encouraging the development of large-scale renewable energy generation. Some suppliers will include RO as a pass-through cost which will appear as a separate item on your bills, while others will consolidate it as part of the overall supply rate you pay. Both these options are available to businesses with non-half hourly (NHH) and half-hourly meters HH) meters. RO was replaced by the Contracts for Difference scheme in April 2017, but existing RO contracts will continue to run until 2027.
- Contracts for Difference (CfD) - Brought in to replace RO, CfD costs are met by a levy applied to energy suppliers, which are then passed on to consumers as the following pass-through charges on your bill:
- Operational Costs Levy - A fixed unit rate per kWh that is charged to cover the running costs of the scheme set by the Local Carbon Contracts Company (LCCC).
- Supplier Obligation Costs - Based on the subsidy paid to each CfD generator according to the volume of energy generated and wholesale electricity costs, this covers the amount of low-carbon electricity funded by CfD. This is a variable charge that is estimated at the start of each quarter and amended accordingly at the end of the quarter.
- Quarterly fixed charges - Another fee that is calculated and revised as necessary, this is a fixed fee that’s paid each quarter to help negate the need for multiple reconciliations and complex calculations.
If your business gas is supplied by independent gas transporters (IGT), your bill will also show any associated IGT charges.
It’s also worth noting that failing to pay your business energy bills will impact your business's credit rating which could limit the energy deals you are eligible for in the future.
What affects the cost of your business energy bill?
Things like standing charges, taxes, government levies, and the amount of energy you actually use all go into making up the total amount you pay for energy.
The price you pay for the energy you use can be affected by the wholesale cost of energy - that's the rate your supplier pays for the energy it provides to your business.
If you're on a variable plan - such as your supplier's out of contract rates - this means that your prices will rise and fall according to market conditions. The current uncertainty in the energy market has seen some business owners paying double the usual cost for their energy, as suppliers have put up their out of contract rates by an average of 100% since August 2021.
Switching to a fixed-rate deal is the only way to protect against paying expensive out of contract rates and to shield your business from future price rises.
Electricity generation costs can also have an impact. The higher the demand for energy, the higher the generation costs. Electricity costs can change by the hour, and higher demand means it costs energy generators more to produce power and this can push prices up. That's why it can cost more to run appliances between 9am and 5pm, when demand is high in homes and businesses than it does at night when less energy is used.
Even world events can affect the cost of your energy bills, as we've seen with the recent price spikes following the conflict in Ukraine. For more information, check out our blog - Why are energy prices rising?
How much does energy cost for a business each month?
It's always been difficult to say how much a monthly business energy bill should be, purely because every business uses energy differently and all quotes are bespoke for each business. But the current volatility in the market makes it virtually impossible to predict prices.
For an idea of how much energy your business should use, along with some typical (pre-energy crisis) rates, read our guide on average business energy consumption.
How to pay your business energy bill
The way you pay your energy bills can also affect the amount you pay overall, so it’s worth taking the time to consider how you pay for your energy and think about changing your payment method if it’ll save you money.
There are a number of different methods of payment (listed on your bill), including:
- Direct Debit - Direct debit is the most common method of payment for business energy customers as it’s not only the most convenient, but some suppliers will also offer a discount for paying this way. If you pay by a fixed direct debit, it’s important to keep an eye on how much energy you are using. It may not cover the extra energy that your business may use throughout the colder winter months. It’s recommended that you review your direct debit amount at least once a year to ensure that it is still sufficient to cover your energy usage – failing to do so can leave your account in credit, or debt.
- BACS - Some business owners prefer BACS payments instead of a fixed direct debit as it allows them to change the amount they pay month-to-month based on how much energy they have used. It means you’ll have to take action each time you need to pay your business energy bill, which can be time-consuming – but also gives you greater control over your outgoings.
- Debit or Credit card - Many suppliers offer the option to pay via credit, or debit card. To do so you will need to contact your supplier’s payment department directly. This number can usually be found on your bill. Much like BACS, paying by this method means you must contact your supplier each time you wish to make a payment, which is not ideal for a busy business owner.
- Cheques or Giro - Another option is to pay by cheque or Giro slip – which can be found at the bottom of your business energy bill. These need to be sent via the post to an address that is defined on your bill. It’s important to take into account postage – typically between three and five days prior to the final payment date – to avoid being hit with late charges.
Picking the right payment method for you can be as much about keeping costs down as it is about the convenience that certain methods can offer busy business owners. If you feel another method of payment may suit your business needs better, you should contact your supplier.
What is an average business energy bill?
Bills are ultimately dictated by your unit rate and your energy usage, and the cost of an average business energy bill is difficult to determine because every business is unique and located in different areas, which means usage can vary dramatically even between two similar businesses in the same industry.
The best way to find out whether you’re paying over the odds is to look at the unit rates available to businesses of your size. For more information on average business energy prices and bills, check out Bionic’s guide to average business energy consumption.
Do businesses pay more for energy?
Although business energy and domestic energy are supplied through the same pipes and cables, sometimes by the same suppliers, you could find your business energy bills are higher than your household ones. There are two main reasons why businesses might pay more than households for their energy:
- They use more energy - no matter what your unit rates is, the more energy you use then the higher your bills will be.
- They pay more VAT - although there are exceptions, most businesses pay the higher VAT rate of 20% on business energy, compared to the 5% paid on domestic energy.
But it's often the case that business energy rates are lower than household energy rates. This is because business owners can negotiate rates that are based on their needs, and higher energy demand is usually rewarded with lower rates. This is why large business energy rates are usually cheaper than those offered to small businesses.
But the ongoing energy crisis has also skewed this, as there is no price cap on business energy. This means there's no limit to the amount suppliers can charge commercial customers but there is a cap on the unit rates and standing charges on domestic energy bills.
The best way to make sure you're on the most suitable rates and deal for your business is to run a business energy comparison. Pop your postcode in the box on the right to get started.
Why are your business energy bills so high?
The prices offered in a quote for business energy are known as acquisition rates and are generally offered to new customers. These prices tend to be more favourable to encourage people to become customers and the main reason why you can usually cut costs by switching suppliers.
If you haven’t switched suppliers in a while, it’s likely you’re paying more expensive rates because your contract has been moved onto one of the following:
- Deemed rates - If you’ve recently moved into new business premises but didn’t sign up with an energy supplier, the supplier that provided energy to the previous occupant will most likely continue to supply the premises. As a result, you’ll usually be placed on “deemed” rates, which are considerably more expensive than the rates offered to new customers. Deemed rates are priced this way to make up for the financial risk suppliers take when they supply energy to a customer who they know little about –they have no record of their credit history or what the business does.
- Out of contract rates - If your contract has recently expired, but you did not arrange a new contract, your supplier will automatically put you on out of contract (also known as standard) rates, which tend to be more expensive than contractual rates. In such cases, you will have the opportunity to switch to a better deal – typically after a 30 day notice period.
How to switch business energy suppliers?
To switch to a better business energy deal from Bionic’s trusted panel of suppliers, just give us your postcode and our tech-enabled experts will use smart data to find an energy deal that suits the unique needs of your business.
You just then need to give us the nod and we’ll take care of the rest - letting your old and new suppliers about the switch to make sure the whole thing runs smoothly, on time and with no disruption.
We’ll even keep an eye on your contract's end dates to make sure you’re never rolled on to your supplier’s more expensive standard rates. To become a Bionic business, just go to Bionic.co.uk and give us your business name and postcode or give us a call on 0800 970 0077.