In July 2023, Ofgem published a Non Domestic Market Review and focused one section of its report on transparency of pricing. One specific example suggested that many businesses did not understand how standing charges worked.
Understanding the Standing Charge
The standing charge is a fixed daily fee that businesses pay their energy supplier, regardless of their energy consumption. It covers the supplier’s fixed costs for providing essential services and maintaining the energy infrastructure. Consequently, businesses incur the same standing charge, regardless of their energy usage.
This charge is almost always itemised on energy bills, usually alongside the relevant meter’s unit rate.
Importance of the Standing Charge
Incorporating a standing charge in energy bills serves the interests of both suppliers and business customers. It ensures a steady revenue stream for suppliers to cover operational and maintenance costs.
For business owners, standing charges enable them to select the right energy contract depending on their business’ profile. For example, businesses with typical “quiet periods” such as holiday parks would theoretically be able to leverage a cashflow benefit from choosing contracts with lower standing charges, even if that meant a higher unit charge. It means their bills would be considerably lower during periods of low use than they would with a more evenly distributed charging structure.
Navigating Tariff Structures
Business owners must carefully assess energy tariffs before selecting a supplier. As a Third Party Intermediary (TPI), Procure Smart would naturally advise business owners to work with an expert to ensure they are making the right choice for them.
Conclusion and example
Standing charges are not complex to understand. They are usually presented in pence per day (p/day) and their annual cost can be calculated using this formula:
(Standing charge p/day x 365) / 100
For example a standing charge of 30p/day would work out as:
(30 x 365) / 100 = £109.50 per year
If you need help understanding your energy bills, Procure Smart offers free, no-obligation quoting services. Simply complete our form below or give us a ring.