What charges are included in your business gas and electricity bills?
Take a look at our quick guide to find out how you're charged for your business gas and electricity.
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There are many factors that contribute to the amount energy suppliers charge you for your business gas and electricity. Obviously, they add a margin for profit - which is obviously a controversial issue - but here's a breakdown of the charges covered by your bill.
1. Wholesale gas and electricity
Unsurprisingly, a large proportion of your bill covers the cost of purchasing energy from the wholesale market.
Gas and electricity companies purchase the energy they expect you to use in advance at the outset of your contract. This ensures that your supply and your prices are guaranteed for the duration of your contract and is a key difference between commercial and domestic energy supplies. This is an advantage of business energy contracts because an increase in wholesale energy prices will not have an immediate effect on your bills.
2. Transmission Use of System (TNUoS)
The transportation and distribution of energy involves a significant cost that is also built into your business gas and electricity bills. Your supplier is obliged to pay a fee to the National Grid - Britain's high-voltage electricity transmission network - to cover the expenses they incur for maintenance, upkeep, generators and distribution networks. These charges will vary depending on the geographical 'zone' in which your business operates. Each zone has different demands on electricity consumption and generation.
For high-consuming businesses that have half-hourly meters, TNUoS charges are based on the peak levels of demand measured over three half-hour time periods between the months of November and February in a financial year. These time slots are known as Triads.
For customers whose businesses do not use half-hourly meters, the energy company is charged based on the sum of the total consumption between 16.00 and 19.00 every day in the entire year.
3. Distribution Use of System (DUoS) charges
These charges are required by Distribution Network Operators (DNO) - the companies that are licensed to distribute electricity in Britain. The charges comprise standing charges, day and night charges and the maximum supply requirements of the sites on the network.
4. Climate change levy (CCL)
The CCL is a tax paid by non-domestic energy users. The fact that this is paid on a per-unit basis means it provides a financial incentive for businesses to improve their energy efficiency and reduce their carbon emissions. Companies are exempt from paying the CCL if the energy they use is generated by renewable sources such as hydropower. However, nuclear power - despite causing no direct carbon emissions -issubject to CCL.
5. Value added tax (VAT)
VAT is charged on business gas and electricity bills at the current rate of 20%. However, if your business uses less than 33 kilowatt hours (kWh) of electricity or less than 145 kWh of gas per day, you may be eligible to pay the "De-minimis" rate of VAT. This is currently at 5%. If you run a charity or non-profit organisation, you should also be eligible to pay the lower rate of VAT.