Business Energy Standing Charges

Anybody who’s glanced at an energy bill will be fully aware that the amount that you use isn’t the only factor affecting the amount that you pay. And one particular charge that warrants further inspection is the standing charge, and understanding this charge is essential for businesses that want to manage their energy costs effectively.

Understanding Business Energy Standing Charges

The standing charge on your business gas and electricity bill is the amount you pay each month to cover the cost of physically supplying energy to your premises, and keeping it connected to the energy network. Perhaps the best way to consider standing energy charges is to look at them as you might a telephone landline rental charge or cable TV subscription. You’ll have to pay them, regardless of the amount that you use them. 

Factors Influencing Business Energy Standing Charge Rates

Maintaining gas and electricity supplies is an expensive business with high fixed costs. Such costs as conducting meter readings, maintaining the energy network (pipes and wires) and connecting your premises to the energy network are all contributing factors. 

These charges are divided into two; Distribution Use of System Charges or 'DUoS' (Distributed Use of System) charges cover the cost of installing and maintaining local electricity distribution networks that help distribute power to your business, while ‘TNUoS’ (Transmission Network Use of System) charges cover the cost of building and maintaining transmission infrastructure. 

Suppliers are not obliged to pass these fixed costs on to customers through their standing charge (as opposed to a unit rate), but they can do so under Ofgem (the sector regulator) rules. In practice, all suppliers have chosen to pass on their costs to customers using standing charges and setting those standing charges at a similar level. 

How Standing Charges Work on Different Energy Contracts

Of course, business energy contracts work very differently to domestic ones, and this influences how standing order charges are implemented. Here are the two most common types of business energy contracts, and they interact with these charges. 

Fixed Contracts

If you’re on a fixed energy contract, your supplier could price your standing charge either as pence per day or pounds per month. All electricity contracts include some sort of standing charge; there are currently no ‘zero standing charge’ electricity tariffs available on the market. Some gas contract offers have a unit rate and no standing charge, but these tariffs tend to have higher unit rates than others. Standing charges also tend to be the same regardless of the length of the contract. 

Variable Contracts

Standing charges work slightly differently if you’re a large energy user on a variable contract. You’ll likely have your standing charges as a pass-through cost - this is a fee paid to other companies who operate and maintain the energy network.

These costs are the same for all suppliers, and they always appear on the DUoS or gas transportation charges on your bill. The charges could fluctuate during your contract, in line with changes to DUoS and gas transportation charges. Your supplier might also change their management fee on a per-meter basis rather than as a £/KWh cost.

Average Standing Charges for Business Electricity

Average standing charges for business electricity are calculated by the size of your business and how much energy you use. The average daily charges for the start of 2024 were: 

• Microbusiness (0-5,000 kWh per year): 70p

• Small Business (5,000-15,000 kWh per year): 80.1p

• Medium Business (15,000-25,000 kWh per year): 80.1p

• Large Business (25,000-50,000 kWh per year): 119p

It should also be added that these average figures do not take into account whether you’re on a fixed or variable rate, while they also won’t take into account regional variations, most significantly how far your business is from its nearest power generator. 

Comparing Business Electricity Standing Charge Rates

These figures represent tariffs available to a business based in London which uses 25,000 kWh of electricity, as of 1 January 2024. Business electricity prices change daily due to a fluctuating market, so these should be considered guides only.

Why Are Standing Charges Increasing?

The energy price cap is one reason why standing charges have increased. This limits the amount suppliers can charge domestic customers on their default energy tariffs and includes both the unit rate and standing charge. With no rules on how suppliers split the capped amount between the unit rate and the standing charge, some suppliers have pushed up the standing charge.

But without a price cap on business energy, why are non-domestic standing charges increasing? It could be that suppliers have had to cover the cost of dozens of suppliers going bust over the last few years or that increased transportation costs have made it more expensive to get energy to premises. 

Finding the Cheapest Standing Charge for Business Electricity

The lion’s share of your business electricity costs will be on the standing charge and the unit rates, and finding the most cost-effective plan for your business needs will depend on the specifics of your business and how you use your energy. If you’re close to your nearest substation, for example, your standing charge will likely be lower. If you have a large business with several meter points, your supplier might also price your standing charge on a per-meter rather than a per-kWh cost.

No Standing Charge Options for Business Electricity

There are not currently any options for business electricity with no standing charge, but this may change in the future. A business electricity contract without a standing charge will likely be charging as much, but this doesn’t mean that there isn’t money to be saved here. 

If, for example, you run a seasonal business that only operates for part of the year, you might want to consider a no standing charge tariff so that you don’t end up paying for gas and electricity when you’re not using any, if they’re available.

There are advantages and disadvantages to no standing charge options. On the one hand, you only pay for the electricity that you use. But it’s not all good news. Unit rates on this type of tariff tend to be more expensive than on tariffs that include a standing charge, so you might end up paying more every month, especially if your usage is high.

Can Businesses Save Money by Opting for No Standing Charge Plans?

Under the right circumstances, you absolutely can. No standing charge plans can look superficially appealing, with the standing charge completely removed from the equation. But remember that the unit rate will be higher and that this option will not be suitable for a lot of businesses.

Standing charges are likely here to stay, but that doesn’t mean that there aren’t ways in which you can save yourself money by looking carefully at your electricity usage. Many businesses are believed to be on ‘deemed out-of-contract’ tariffs. This occurs If you haven’t agreed to an energy deal with your supplier, then you’ll be on what’s called a ‘deemed’ contract, and these costs are usually higher than if you can get a new contract. By taking control of and understanding your energy usage, you could benefit both your business’s bottom line and carbon footprint.