Understanding standing charges and recent increases: A guide for businesses

What are standing charges? 

A standing charge is a fixed daily amount that you pay on your energy bill, regardless of how much energy you consume. Whether it’s gas or electricity – standing charges are a consistent feature, varying by supplier, location, payment method, and meter type.

Standing charges serve several purposes: 

Maintenance of energy supply network: The costs associated with maintaining the infrastructure that delivers gas and electricity to your premises. 

Meter reading and administration: Expenses related to visiting properties for meter readings and administrative tasks. 

Costs of failed suppliers (electricity only): In cases where energy suppliers exit the market, the costs are distributed among remaining suppliers to ensure continuity of services. 

In essence, standing charges ensure you stay connected to the grid and have access to the energy you need. In 2016, Ofgem declared that it’s no longer required to have a standing charge applied to an energy tariff. But there are few ‘no standing charge’ tariffs available. 

What is the difference between a standing charge and the unit rate?

Unit rates are the cost per unit of gas or electricity you use by kWh (kilowatt hour). This is determined based on your meter readings. Standing charges are the fees you pay to your energy provider to access energy before you’ve even started paying for what you use – regardless of how much energy you use. 

What factors affect the cost of standing charges? 

• Your businesses Targeted Charging Review (TCR) band 
• The size of your business 
• The amount of energy used 
• The type of energy used 
• Current energy market condition 

Why the recent spike in standing charges?

You may have noticed your business energy bill increasing due to standing charges. The energy price cap is one factor why this has occurred. This limits the amount suppliers can charge domestic customers on their default energy tariffs. This includes the unit rate and standing charge. But there are no rules on how suppliers split the capped amount between the unit rate and standing charge. This has seen some suppliers push up the standing charge. 

But there’s no price cap on business energy, so why are non-domestic energy users seeing an increase in their standing charges? This can be due to suppliers having had to cover the cost of other suppliers going bust over the last few years. Another is increased transportation costs caused by supply chain issues – when it becomes more expensive to get the energy to customers’ premises, these costs will be passed on by suppliers. Increases in standing charge can also be attributed to the below factors: 

Network charging reforms: Changes in the way we pay for using the energy network have been underway. Ofgem’s decision to shift network infrastructure costs from unit rates to fixed charges has contributed to rising standing charges. Factors such as infrastructure upgrades and increasing material and labour costs also play a role in this increase. 

Rising costs: The urgent need to upgrade our energy infrastructure to meet net-zero targets has led to increased network costs. This is further compounded by inflation, rising material costs, and wage increases. 

How much is the standing charge for business energy? 

The cost of your standing charge will depend upon the type of energy deal your business is on, the size of your business, the amount of energy it uses, and its TCR band. TCR stands for Targeted Charging Review, which is an Ofgem initiative that shifted energy distribution and transmission charges (known as DUoS and TNUoS charges) from energy unit rates to standing charges. 

As of April 2024, electricity standing charges have risen from 53p a day to on average 60p a day, while standing charges on gas have risen from 30p a day to 31p a day. 

Need help to secure a business energy contract? Contact us today

By working in partnership with you, we can secure an energy contract that works for your business. Whether you run a small business or large enterprise our energy experts can be a strategic partner helping you to achieve your energy goals. Contact us today to discuss your energy contract options. 

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