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The definitive guide to kWh pricing for businesses

When you get your first business energy bill, it can be a little difficult to decipher. In particular, many businesses are unsure about how energy is measured — and what they can do to keep costs down.

In our in-depth guide, we explain all you need to know about kilowatt-hours, from what it means to how much businesses use.

Contents

  1. What is a kilowatt-hour (kWh)?
  2. What’s the difference between a kilowatt (kW) and a kilowatt-hour?
  3. How many kWhs does a typical business use?
  4. How much should businesses pay per kWh?
  5. Why does the price of energy per kWh vary between regions?
  6. Can businesses reduce their kWh unit prices?

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 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?

The prices businesses pay for energy per unit 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.

The average cost of business electricity per kWh

The average cost of electricity per kWh is between 15 and 16p, according to our data.

However, this average varies depending on the region in which your business is located. Our data shows that companies in Wales can expect to pay as much as 16.7p — as much as 11% more than London-based businesses — and those in Scotland pay on average 16.4p for theirs.

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

Annual electricity usage (kWh)

15,000

Average unit cost (per kWh)

15.8p

Daily standing charge

28p

Subtotal

£2,472.20

VAT (20%)

£494.44

CCL (0.847p per kWh)

£127.05

Total

£3,093.69

If you’re a business that uses a lot of electricity, you might be able to negotiate a cheaper unit price 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 is between 4.5p and 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 is taxed differently to domestic power: companies are expected to pay 20% VAT and the CCL if applicable.

Here’s an example of how a small business might be charged for its gas usage:

Annual gas usage (kWh)

15,000

Average unit cost (per kWh)

4.7p

Daily standing charge

21p

Subtotal

£781.65

VAT (20%)

£156.00

CCL (0.339p per kWh)

£50.85

Total

£988.50

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 has to 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 still have to pay more overall.

Can businesses reduce their kWh unit prices?

The good news is that there are ways for businesses to reduce the amount they pay per kWh of energy they use.

Switch energy provider

The easiest way to reduce business energy costs is to switch to a provider that charges less per kWh. To find the best deal, simply enter your postcode into our quote comparison tool and we’ll find a quote to suit your business’s energy budget in no time!