Business Electricity Prices per kWh Explained

17 February 2017

Business Electricity Prices per kWh Explained

You have probably heard a lot of talk about business electricity prices per kWh. In this article, we’ll look at what it is and how it affects the price you pay for electricity.

What Is a kWh?

The kWh unit of energy is a method used by energy suppliers to measure how much energy you use in an hour. It stands for kilowatt hour and is equal to one kilowatt of power used constantly for one hour.

What does that mean in the real world? Here are two examples:

A device, such as an electric heater, with a 1,000 watts rating will use 1 kWh for every hour it is in use (1,000 watts = 1 kilowatt).

You use around 1 kWh for every 10 boils of the kettle in the staff kitchen.

How kWh Appears on Your Bill

The kWh rate charged by business electricity suppliers is only part of the bill. It’s an important part, but you can't focus on it alone. This is because you’ll also be charged a Standing Charge. Here's how electricity billing works:

  • Standing Charge - This is a daily price and is designed to cover the cost of maintaining the national grid and getting power to your business.
  • kWh - As already explained, this is the unit of measurement used to charge you for how much electricity you actually use.

To get a proper understanding of your bill, you have to look at both elements on an annual basis. Looking at any element in isolation, or calculating in any way other than annually, makes it hard to properly compare or analyse.

Here’s an example: Let’s say you’re a small business that uses 20,000 kWh of electricity a year. Your energy supplier charges you 11p per kWh for that electricity plus a standing charge of 24p per day.

In the example above, the kWh element of the bill is £2,200 (20,000 * 11p). The standing charge element is £87.60 (365 * 24p). The total annual bill is, therefore, £2,287.60.

As you can see, the only accurate way of understanding an electricity tariff, and the only way to compare different offers, is to look at the total annual charge. This is easy to do if you can look at your electricity use history. If you’re a new business, however, you will have to use estimates.

What Factors Impact on kWh and Standing Charge Rates

One thing that can be helpful when looking at the rates you are charged for electricity is to understand how energy companies assess your business to come up with the tariff offered.

Here are some of the things your electricity supplier will look at:

  • Amount of energy - how much energy your business uses in a year
  • Size - the size of your business
  • Type - the industry you operate in
  • Fuels - whether you just use electricity or use gas as well
  • Location - where your business is located
  • Length - the length of the contract

It is a complicated calculation with a number of factors in the mix, but the end result comes down to a single figure: your annual cost for electricity.

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