Guide to Business Electricity Standing Charges

Standing charges for business electricity are something that companies have to pay regardless of how much energy they use on their premises, and it can form a significant part of every business energy bill.

This guide takes a closer look at business electricity standing charges, why they vary so much and how to find the best available business electricity rates for your company so that you’re not paying over the odds for your energy.

Jump to:

• Why Do Standing Charges for Business Electricity Exist?

• Are Business Electricity Standing Charges the Same as Residential Energy Standing Charges?

• Why Have Business Electricity Standing Charges Increased in Recent Years?

• What Factors Can Affect Business Electricity Standing Charges?

• Do Business Energy Standing Charges Vary Between Suppliers?

• Are Standing Charges for Business Electricity Capped?

• Are Business Electricity Standing Charges Compulsory?

• What is the Impact of Business Electricity Standing Charges on the Company Energy Bill?

Why Do Standing Charges for Business Electricity Exist?

The idea of business energy standing charges is that it’s a cost paid by every company to fund the costs of maintaining the energy supply network. Some of the areas this covers include:

• Network maintenance: To cover the costs of distributing electricity from where it is generated to local networks and the various business premises.

• Metering costs: These include installing and maintaining meters, as well as the data collection involved with meter readings.

• Customer service: To pay for the costs of running customer service teams, billing management and other administrative systems.

• Renewable energy investment: To cover the cost of investments made in renewable energy infrastructure.

Are Business Electricity Standing Charges the Same as Residential Energy Standing Charges?

It’s likely that standing charges for business electricity will be different to residential energy standing charges, even if you are using the same supplier and in the same region. This is because business standing charges are linked to the costs of maintaining the business energy infrastructure rather than residential energy infrastructure, and the standing charges for businesses are often subject to more factors, as outlined below.

Why Have Business Electricity Standing Charges Increased in Recent Years?

Businesses that have been operating over the last few years may have noticed that standing charges for electricity have gone up significantly over that period of time. Part of the reason for this is that Ofgem, the energy industry regulator, introduced the Targeted Charging Review (TCR) with the aim of making electricity transmission and distribution costs fairer by putting businesses into bands based on their size and average usage. The electricity transmission and distribution costs used to be recovered from businesses through unit rates, depending on usage at different times of the year, but this system wasn’t considered fair because some companies were able to reduce their electricity use at these times when others could not.

It was anticipated that unit rates would decrease in cost as standing charges increased due to the TCR banding system, but this transition, unfortunately, coincided with the recent global energy crisis, which had a huge impact on wholesale energy costs. This meant that many businesses saw an increase in both their electricity standing charges and unit rates simultaneously.

What Factors Can Affect Business Electricity Standing Charges?

For businesses, several factors can have an impact on the electricity standing charges levied, which can include:

• The specific business electricity deal your business is on, as different tariffs can have different standing charges.

• The Targeted Charging Review (TCR) band that your business is in is based on company size and average energy consumption.

• The location of your business premises, as standing charges tend to vary from region to region because the infrastructure complexities are different, depending on location.

• The current energy market, because standing charges can go up or down depending on the status of the market at any given time.

Do Business Energy Standing Charges Vary Between Suppliers?

Standing charges for business electricity accounts often vary between suppliers, and alternative tariffs can also be different from the same supplier.

It can be the case that energy suppliers will offer lower electricity standing charges on some deals, but will have higher unit rates, which can be a good option for businesses which are very low users of electricity, or operate seasonally and don’t use any electricity at various points of the year. A business electricity deal which offers a low standing charge but higher unit rates will usually work out more expensive for companies with average or higher use.

Are Standing Charges for Business Electricity Capped?

There is a cap on energy prices for domestic electricity in people’s homes throughout the UK, which includes the maximum amount that can be charged for standing charges and unit rates combined. Unfortunately, there is no national cap on business electricity standing charges or unit rates. This means that unless your business is on a fixed rate electricity deal, your standing charges and/or electricity unit rates can be increased at any time by the supplier.

This is one good reason why a business on a deemed contract for energy should always check to see if a better deal could save you money.

Are Business Electricity Standing Charges Compulsory?

Any business connected to the National Grid will need to pay electricity standing charges if they are levied by your supplier. That is regardless of whether your company is using any electricity or not.

It is actually not compulsory for business energy suppliers to apply standing charges to their customers, as they can recoup costs entirely through unit rates if they choose to. However, most energy suppliers currently use standing charges to do this.

There have been many no-standing charge tariffs available to businesses in the past, so if the global energy market continues to stabilise, we could see a return of these options in the future. These business electricity deals would be best for businesses with low usage or usage that fluctuates significantly at different times of the year.

What is the Impact of Business Electricity Standing Charges on the Company Energy Bill?

The impact of standing charges for business electricity on your wider bill will depend on how much electricity your company uses. For higher electricity users, the proportion of the bill that is made up of standing charges will be much smaller. The standing charges will make up a much higher proportion of the total bill for lower users of business electricity, such as microbusinesses.

It’s important to check your business energy bill for important information about what you’re being charged, as well as your current contract end date. When your current contract is ending, it is the ideal time to do a business energy comparison to see if you can save money by switching deals.