Business energy unit rates explained

A unit rate is the price charged for each kWh of electricity or gas a business consumes, usually quoted in pence per kWh, and it forms the largest variable component of most commercial energy bills alongside the fixed standing charge.

The unit rate is not a single cost but a bundle of several elements: wholesale commodity cost, network charges, government levies such as the Climate Change Levy, and supplier margin. These are combined by the supplier into the single figure shown on your contract and bill.

Unit rates vary by fuel, business size, region, meter type and contract length. Electricity unit rates for UK businesses typically fall between roughly 22p and 32p per kWh, while gas typically falls between 6p and 9p per kWh, though both figures move with wholesale conditions and should be treated as a general guide rather than a promise.

A lower unit rate is not automatically the cheapest overall deal, because the standing charge and contract length also affect total cost. Worked example: a rate of 25p per kWh with a 65p daily standing charge on 6,000 kWh annual consumption totals £1,500 for commodity plus £237.25 for the standing charge, giving £1,737.25. A rate of 28p per kWh with a 35p standing charge on the same consumption totals £1,680 plus £127.75, giving £1,807.75. Here the higher unit rate produces the higher total, but at lower consumption volumes this comparison can flip, which is why checking the total is essential rather than relying on the unit rate alone.

Unit rates can be fixed for the duration of a contract, offering budget certainty, or variable, tracking the wholesale market more closely and offering the potential for savings if prices fall during the contract term, at the cost of exposure if they rise.

Time of use also affects unit rates for half-hourly metered businesses, where some contracts price consumption differently depending on when it occurs during the day, meaning the average rate paid can differ from the headline rate quoted if a business's load is concentrated in particular time bands.

Because unit rates move daily with the wholesale market, comparing quotes gathered at different times is not a fair comparison. Requesting quotes from multiple suppliers within the same short window gives the most accurate picture of where the market genuinely sits.

The unit rate quoted to your business reflects your own consumption profile and credit standing as much as the broader market, which is why two businesses of similar size can receive noticeably different rates, and why shopping the market individually, rather than assuming a headline average applies to you, remains the only reliable way to know your true cost.

When reviewing any quote, always ask for the unit rate and standing charge together, in writing, and calculate the total annual cost using your actual consumption before deciding whether an offer represents genuine value.

It is worth distinguishing between the unit rate shown in your contract paperwork and the effective rate you calculate by dividing your total bill by total consumption, since the latter includes VAT, the Climate Change Levy and any capacity charge, and will always come out higher than the contracted commodity-plus-standing-charge figure alone.

Some supplier rate cards present a single blended unit rate that already folds the standing charge into an inflated per-kWh figure, particularly for very low consumption micro business tariffs. This can make like-for-like comparison harder, so it is always worth asking a supplier to break the rate back out into its unit rate and standing charge components before comparing it against a more conventional two-part quote.

It is worth remembering that the unit rate printed on your contract sits before VAT and the Climate Change Levy are applied, so the pence-per-kWh figure you agree with a supplier is never quite the pence-per-kWh figure you ultimately pay once both are added at the standard rates that apply to most commercial accounts.

Unit rates for very low-volume micro business accounts, sometimes under 5,000 kWh a year, can look disproportionately high per kWh compared with a mid-sized office, simply because the supplier is spreading the same fixed servicing cost across a much smaller number of units, which is why comparing your rate against a business of a similar size is far more useful than comparing it against a national headline figure.

Because unit rates shift with the wholesale market on a daily basis, it is the timing of when you lock a rate in, not just the supplier you choose, that determines whether you end up with a genuinely competitive figure, which is one reason starting the comparison process well ahead of your renewal date matters more than most businesses assume.