Energy standing charges for small businesses – what are they and why are they so varied?

Standing charges for businesses is a hot topic in the news. We’re hearing that small business customers are concerned with increasing standing charges, and the variety of offerings; making it difficult to know which tariff to choose.

One example is the difference in standing charges vs unit rates. Small business customers are seeing some tariffs that offer zero standing charges but higher unit rates. On the other hand, some suppliers are offering lower unit rates coupled with higher standing charges.

In this article we break down the main issues to work out what’s best for your small business - often that doesn't mean a zero standing charge tariff.

What’s a unit rate vs a standing charge?

A unit rate is a charge on each unit of energy a consumer uses and is calculated in kilowatts per hour (kWh).

A standing charge is a cost that’s included in most electricity and gas bills. It’s a cost that’s charged every day, even if no energy is used.

What does a standing charge include for a small business?

Suppliers typically use the standing charge to cover costs. These costs include the need to maintain the energy supply network (including fixed distribution and transmission costs), take meter readings (including data collection and meter maintenance costs), and customer service costs.

Standing charges in more detail:

Why have standing charges increased?

Over recent years standing charges have been increasing for both residential and business customers, although for slightly different reasons. For residential customers, the price has increased mainly due to other energy companies going out of business during the energy crisis, and the costs the industry incurred from this.

For small businesses, part of the reason for the standing charge increase was Ofgem’s Targeted Charging Review. This review was aimed at making sure the recovery of transmission and distribution costs was done in the fairest way possible. Originally, these costs were recovered through the unit rate, based on how much a customer used during certain times of the year. However, it was considered unfair as certain businesses could avoid this charge by reducing their consumption during these periods, while others couldn’t. Instead, this became a fixed cost, which resulted in the daily standing charge increasing for customers.

It was expected that this increase in standing charges would coincide with a drop in unit rates for most customers, as the overall cost of transmission and distribution wasn’t changing significantly. However, the introduction of this change happened alongside the energy crisis, when other costs recovered by the unit rate increased dramatically – in particular wholesale energy costs. This meant many customers saw an increase in both standing charges and unit rates.

What’s better for my business - a cheaper standing charge or unit rate?

It really depends on your consumption – the best way to discover if a cheaper standing charge or a cheaper unit rate is better for your small business, is to compare energy tariffs total costs. To do this you need to compare combined unit rates and standing charges for your consumption. That’s the important bit – you must make your calculation on your actual consumption, this way you’ll know what works out cheaper for your business. Why? If you’re not using any energy at your property, then a low or zero standing charge tariff is probably a great option for you to explore. If your energy consumption is relatively high, you may not want to rule out high standing charges. Often, this can mean lower unit rates for the energy you’re using.

Worth noting if you’ve just moved property: Typically, standing charges for owner occupier tariffs across the industry are more expensive than a fixed tariff, so suppliers can reduce risk with an unknown customer. Therefore, it’s best to find the right fixed tariff for your business if you move into a property, or even move to a variable option, until you decide.

What are EDF doing?

We know small businesses have a lot on their plate and are struggling with rising costs, because of this we welcome the Federation of Small Businesses taking action to help small businesses. We’re constantly evolving to take onboard their feedback to improve your customer experience. Together, we want to help business customers understand what’s happening in the market and to take control of their energy.

In the EDF small business team, we believe energy should be effortless for our customers – that’s why we offer simple to understand fixed tariffs with competitive standing charges and unit rates. We review our prices regularly to check we’re offering good value to our small business customers. We display these clearly for customers so you can make an informed choice. See EDF standing charge and unit rates for your business in just 60 seconds

Key takeaways:

• Standing charges increased with the Targeted Charging Review from Ofgem. The aim was for unit rates to reduce, making covering transmission and distribution costs fairer. But the energy crisis hit.
• The Federation of Small Business are calling for a review of standing charges for business customers.
• In instances where standing charges are different between energy companies, often the unit rates will also be different.
• A lower standing charge does not always mean a cheaper bill overall.
• The best way to find out if a lower standing charge or unit rate is better for your business is to compare tariffs based on your actual consumption.
• You can get a quote with EDF in 60 seconds to compare our small business unit rates and standing charges.

Other relevant articles: For energy saving tips for small business, please refer to Tips to Help Save & Cut Your Office Energy Bill | EDF (edfenergy.com)

Hear from our dedicated business energy specialists as they discuss the benefits of switching to a zero standing charge tariff.