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The definitive guide to kWh pricing for businesses

If you want to lower your business energy bills, switching to a tariff with a lower unit rate is essential. However, without knowing the average electricity prices per kilowatt hour (kWh), it can be difficult to know whether you’re getting a good deal.

In this in-depth guide, we explain all you need to know about gas and electricity prices per kWh, from what they mean to the average costs.

Contents

      1. What is a kilowatt-hour (kWh)?
      2. What’s the difference between a kilowatt (kW) and a kilowatt-hour?
      3. How many kWh does a typical business use?
      4. How much should businesses pay per kWh?
      5. What are the other costs involved in business gas and electricity prices?
      6. Why does the price of energy per kWh vary between regions?
      7. Finding the best gas and electricity prices
      8. Gas & Electricity Prices Per kWh FAQs

What is a kilowatt-hour (kWh)?

A kilowatt-hour (kWh) is a unit of measurement for energy usage. It’s based on the equivalent in power consumption to using one thousand watts for one hour. 

For example, an appliance that used 1,000 watts of energy would take an hour to reach one kilowatt-hour, whereas an appliance of just 10 watts would take 100 hours to use the same amount of energy.

What’s the difference between a kilowatt (kW) and a kilowatt-hour (kWh)?

A kilowatt is a unit of power made up of 1,000 Watts. On the other hand, a kilowatt-hour is a measure of how much energy is being used over time.

For example, you won’t reach 1 kWh running a 1,000 Watt washing machine for half an hour. Instead, you’ll use 0.5 kWh.

How many kWhs does a typical business use?

What’s ‘normal’ when it comes to commercial energy consumption depends on the size of your business.

For example, the average energy consumption for a micro business (a business with 1 to 9 employees) is between 5,000 — not much more than the average UK household — and 15,000 kWh per year. That’s about 25 kWh per day.

On the other hand, small and medium businesses might use up to 65,000 kWh per year depending on their industry, and huge businesses like factories can use as much as 20 million kWh annually!

What matters more is how much you pay for each unit of energy you consume. 

How much should businesses pay per kWh?

Business gas and electricity prices per kWh are similar to those you’d pay at home. However, there are two key differences:

      1. Businesses pay more VAT than homeowners. They are charged 20% for VAT while domestic energy users are only charged 5%.
      2. Business energy costs are subject to the Climate Change Levy (CCL). 

The Climate Change Levy is an additional government tax that businesses pay on electricity, gas and solid fuels like coal and petroleum. Some small businesses and charities may be exempt from the CCL.

What are the average business energy prices per kWh

The prices businesses gas and electricity prices per kWh are similar to those you’d pay at home. However, there are two key differences:

      1. Businesses pay more VAT than homeowners. They are charged 20% for VAT while domestic energy users are only charged 5%.
      2. Business energy costs are subject to the Climate Change Levy (CCL). 

The average business electricity prices per kWh

The average cost of business electricity in 2020 is 13.93 pence per kWh. However, the average electricity prices can vary depending on several factors including the size of your business.

For example, mirco and small businesses are charged an average unit rate of 17.34 pence per kWh. For larger business energy, the average cost per unit drops to 12.36 pence per kWh.

Here’s an example of how a small business may be charged for its electricity over the year. 

Annual electricity usage (kWh)

20,000

Average unit cost (per kWh)

14.83p

Daily standing charge

26.83p

Subtotal

£3,063.93

VAT (20%)

£612.79

CCL (0.847p per kWh)

£169.40

Total

£3,846.12

 

If you’re a business that uses a lot of business electricity, you might be able to negotiate cheaper electricity prices per kWh and standing charges. Large consumers like manufacturing plants often negotiate lower rates by operating at specific times of day to reduce the strain put on the main grid.

The average cost of business gas per kWh

The average cost of business gas per kWh in 2020 is just under 2.5p. Standing charges for business range from 19p to 25p.

Businesses that use a lot of gas — such as restaurants or factories — can negotiate a lower rate on the unit price and standing charges for their gas.

Like electricity, business gas prices are taxed differently to domestic gas comparisons: companies are expected to pay 20% VAT and the CCL if applicable.

Here’s a breakdown of the average of gas prices per kWh and how a small business might be charged:

Annual gas usage (kWh)

15,000

Average unit cost (per kWh)

2.303p

Daily standing charge

26.83p

Subtotal

£443.38

VAT (20%)

£88.68

CCL (0.339p per kWh)

£60.90

Total

£592.96

What are the other costs involved in business gas and electricity prices?

As you can see in the pricing example above, there’s a range of costs that make up the price of your business gas or electricity bill.

The first is your standing charge which is paid at a set daily rate. Businesses will be required to pay standing charges regardless of how much gas or electricity they have used that day.

If you want to avoid paying a daily fee, you can sign up to a no standing charge tariff. However, you should bear in mind that these tariffs can come with increased unit rates. Taxation costs make up the remainder of your business energy bill. This includes VAT paid at a rate of 20% and the Climate Change Levy (CCL).

The Climate Change Levy is an additional government tax that businesses pay on electricity, gas and solid fuels like coal and petroleum. Some small businesses and charities may be exempt from the CCL.

When comparing business energy prices, it is important to factor in all costs involved. A tariff with the cheapest prices per kWh is not always the best value deal.

Why does the price of energy per kWh vary between regions?

When the UK imports energy, it imports from Europe. Most of this energy comes into London before it is distributed to the rest of the UK. This means London is the first to get energy so less of it is needed to generate each kWh of output. 

On the other hand, regions like Wales and Scotland are further away from the source of energy. When energy is transported, some of it is lost.

The further that energy must travel, the more of it is wasted in the process. While some power stations in regions like Scotland and Wales can make up for the energy loss, these regions will still pay more overall.

Finding the best gas and electricity prices

The good news is that there are ways for businesses to reduce the amount they pay per kWh of energy they use. If your business energy contract is coming to end, it is vital to compare gas and electricity quotes to make sure you are on the best deal for your business.

The prices quoted in your renewal letter by your supplier will often be much higher than those available to new customers.

With Love Energy Savings, you can search the latest business and home gas, dual fuel and electricity comparison prices online in seconds. All we need from you is your address, the fuel you’d like to compare and a few contact details.

Switch your energy supplier with Love Energy Savings

Switching to a supplier that charges less per kWh is the easiest way to reduce your business energy costs.

With Love Energy Savings, the switching process couldn’t be simpler. Once you’ve chosen the tariff that’s right for you, our dedicated account managers will take care of the process of your switch to get you set up with your new supplier hassle free.

To find the best deal, simply enter your postcode into our quote comparison tool and we’ll find a quote to suit your business energy budget in no time!

Gas & Electricity Prices Per kWh FAQs

What affects my prices per kWh?

Not all businesses will pay the same unit price for the gas and electricity they use. Higher users of energy will often pay a lower rate than smaller businesses with low energy usage.

There are several factors which can affect your gas and electricity unit price including:

  • Your business type
  • How much energy you use
  • Whether you own a small business or large corporation
  • If you use both gas and electricity
  • The region your business located
  • The length of your energy contract

How can I find out if I’m paying too much for my gas and electricity?

The quickest way to find out if you are paying too much for your gas and electricity is to run a price comparison with Love Energy Savings.

The average prices per kWh are 13.93p for electricity and 2.495p for gas. However, these will not be the cheapest rates available.

If it’s been a few years since you switched your business energy supplier, or if you have never switched, it’s likely you will be paying too much for your gas and electricity.

Do wholesale energy prices per kWh affect by unit rate?

Wholesale energy prices per kWh can vary on a weekly or even daily basis. On average, around half of a business energy customers bill is made up of the wholesale energy costs.

Changes in the price of wholesale gas and electricity can affect your business energy bill, especially for those on a variable rate tariff. If your business is currently on a fixed rate tariff, any changes in wholesale prices will not affect your unit rate for the duration of your contract.

Wholesale prices have fallen in recent years with the wholesale electricity prices per kWh currently at around 3p per kWh. The latest wholesale gas prices stand at around 0.5 pence per kWh.

Which supplier offers the cheapest prices per kWh?

As your unit cost depends on several factors unique to your business, the cheapest energy supplier for one business may not be the cheapest supplier for another.

This means that there is no one cheapest supplier for all businesses. The easiest way to find the cheapest gas and electricity deal for your business is to compare energy prices online.