Business electricity prices explained: what you are actually paying for

A business electricity price is not a single number set by one company. It is a combination of wholesale commodity cost, network charges, government levies and supplier margin, bundled into the unit rate and standing charge you see on your bill and contract.

The wholesale commodity cost is what the supplier pays to buy electricity ahead of delivering it to you. This portion moves with the broader energy market, including gas prices, since gas-fired power stations frequently set the marginal electricity price in the UK. It typically represents around half of a commercial electricity bill, though the proportion shifts as wholesale prices rise or fall.

Network charges cover the cost of transporting electricity from generation to your premises, split between transmission charges for the national grid and distribution charges for the regional network operator serving your area. These charges are regulated and vary by the distribution area you sit in, meaning identical businesses in different parts of the country can see different network cost components.

Government policy costs include schemes such as the Renewables Obligation and Feed-in Tariff, which fund renewable generation, and the Capacity Market, which pays generators to guarantee available power at peak times. These are set externally and passed through to businesses via their supplier rather than negotiated.

The Climate Change Levy is a per-kWh environmental tax added to most business electricity bills, with reduced rates or exemptions available for some energy-intensive industries and very low consumers.

The standing charge is a fixed daily fee covering the cost of your connection and metering, charged regardless of how much electricity you use. It typically ranges from around 25p to 60p or more per day depending on your region and meter type, and its relative impact is largest for low-consumption businesses.

Supplier margin, the part of the price that is genuinely negotiable, reflects the cost of managing your account, the risk of non-payment, and profit. This is the component that varies most between suppliers for otherwise identical consumption, which is why shopping the market matters.

Worked example: on a bill of 27p per kWh, roughly 13p to 14p might reflect wholesale commodity cost, 7p to 9p network and policy costs, and the remainder supplier margin and metering costs, though the exact split varies by supplier, region and time.

Fixed contracts lock the unit rate and standing charge for the contract term, protecting against wholesale rises but also removing the benefit if prices fall during that period. Some fixed contracts still allow pass-through of certain non-commodity costs if they change during the term, so it is worth checking the contract wording rather than assuming a fixed price is fixed in every respect.

Flexible or variable contracts track wholesale prices more closely and can suit businesses willing to monitor the market and manage risk actively, typically larger consumers with access to energy management support.

Understanding this structure helps explain why two businesses with identical consumption can be quoted different rates, and why the same business can see its rate change significantly at renewal even if its own energy use has not changed at all.

It is worth noting that the proportion of a bill made up of wholesale cost versus non-commodity cost is not fixed over time. During periods of high wholesale volatility, the commodity element can dominate the bill even more than the roughly half share typically seen, while during calmer periods, network charges and levies make up a comparatively larger share, since they change far less often than wholesale prices do.

Businesses often assume the standing charge and non-commodity costs are entirely outside their control, and while that is largely true, one exception is the capacity or Available Supply Capacity charge for half-hourly metered sites, which is genuinely reviewable. If your agreed capacity was set some years ago and your actual peak demand has fallen since, for example after equipment upgrades, there may be scope to reduce it and cut that portion of the bill without touching the unit rate at all.

Great Britain runs fourteen separate electricity distribution regions under six licensed network operators, each setting its own charge for using the local wires network. This is a purely regional cost that sits alongside, and is entirely separate from, the wholesale price and supplier margin that make up the rest of your unit rate.

Your MPAN, the 21-digit Meter Point Administration Number printed on every electricity bill, encodes your distribution area, meter type and line loss factor in its top line, with a unique supply number underneath. No supplier can generate a firm electricity quote, as opposed to a rough estimate, without this reference.

VAT applies at 20% to the large majority of business electricity bills, with a 5% reduced rate reserved for businesses using very little power day to day, or where most of the site is used for domestic or charitable purposes. The Climate Change Levy is charged per kWh on top for most commercial users, with limited exemptions for a handful of energy-intensive sectors.