Running a business means you have your hands full with making sure processes are running smoothly, your employees are happy and productive, and you’re making a profit. With all this to juggle, we understand that scrutinising your business energy bills is never your top priority.
But did you know that only 44% of the average is for the electricity supply? You may be wondering where does the other 56% go? Don’t worry, Utility Bidder is here to answer that. We’ve put together this handy guide that explains the unseen 56% on your business electricity bill.
The Three Components of a Business Electricity Bill
Whether you run a small, medium or large company, electricity for businesses can be expensive. However, if you know exactly what your bill is comprised of, then you can discover if you’re paying too much for your business energy. That’s why we’ve outlined the three components of a business electricity bill. These include:
- Commodity, or wholesale, costs
- Non-commodity systems and transmission costs
- Non-commodity policy, or government, costs
Wholesale Costs
The wholesale markets for both electricity and gas are unpredictable and this can have a significant impact on your business electricity bill. The prices can change daily, even as frequently as every half an hour. The seasons can also have a detrimental impact on your average electricity bills, with much higher prices being seen in the winter.
So how do you combat this fluctuation? Well, it is highly recommended that you ensure your business is on the right energy contract. A variable tariff will mean that your business electricity bill is linked to market activity; if wholesale prices increase, so does your bill. But if you choose a fixed-term contract, then you’ll pay a set price per kWh for the duration. This will help you plan and budget better.
If you’re struggling to decide which type of energy contract is right for your business sector, then why not contact a utility broker who will help you find the best deals for your gas, electricity and water.
Distribution and Transmission Charges
Unfortunately, electricity doesn’t just arrive by magic. Included in your business electricity bill is the cost of physically transporting your electricity from its source. Plus, the further away your company is based from where the energy is generated, the more it costs to transport.
The difference between distribution and transmission charges can be explained through roads. Transmission charges are the national motorway network for energy, whereas distribution costs are the smaller A or B roads that carry the energy to its specific destination.
There are specific costs within this section, including:
• Pass through charges: these fees are paid to other companies who operate and maintain the electricity network. For domestic customers, these fees are combined into one single standing charge, but for businesses, they are separated. All energy suppliers apply pass through charges to business electricity bills, but the amounts may vary.
• Transmission Network Use of System (TNUoS): transmission charges are associated with transmitting electricity from a power station to the grid supply points through the high voltage transmission network.
• Distribution Use of System (DUoS): the DUoS cover the cost of distributing electricity to business premises and is applied by regional utilities who manage the distribution network.
• Balancing Services Use of System (BSUoS):these costs are associated with the everyday operation of the transmission system, which helps to balance the grid.
Government Policy Costs
Around a third of your business electricity bill goes directly to the government to pay for environmental initiatives. There are five components of government policy costs, including:
• Climate Change Levy (CCL): first introduced in 2001, the climate change levy is only payable by business customers to improve energy efficiency and cut carbon emissions. This is a part of the net zero carbon emissions scheme where the government hopes to cut greenhouse gas emissions by 2050.
• Feed in Tariffs (FiTs): these were introduced to promote the installation of small-scale renewable and low carbon electricity generation capped at 5MW installations. These payments last for approximately 20 years.
• Capacity Market (CM): the Capacity Market is where annual auctions for capacity are held by power stations to calculate energy storage and demand-side response, which is needed to maintain the security of supply. The government sets the auction volumes and procurements take place four years ahead.
• Contracts for Difference (CfDs): these are the existing mechanism for low carbon generation. The CfDs guarantee a fixed price for each MWh generated, referred to as the ‘strike price’. A CfD contract is 15 years long and is auctioned and budgeted by the government.
• Renewables Obligation Certificate (ROC): this is a support scheme for the development of large-scale renewable electricity generation. In March 2017, the Renewal Obligation was closed, however subsidy payments will continue for the next 20 years.
The average business electricity bill contains 56% of third-party costs. However, now you know what you’re paying for, you can start improving your savings. Reduce the other 44% by switching business electricity providers. Need a hand? why not contact our friendly, expert team and compare business electricity prices now.
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