What’s in a typical business energy tariff?

What’s in an energy tariff?

When you buy energy for your business it comes from a supplier who in turn often buys that energy from a third party on the open market. Some of the larger suppliers own their power generation (like wind farms and power stations), limiting the amount they need to purchase and their exposure to the open markets.  In both cases, the price they pay for wholesale energy can vary.

If you’re on a fixed tariff or term contract, you know in advance what you’re paying. If the wholesale price of energy changes, your energy prices don’t.

If you’re on a standard, default or variable tariff prices might go up or down – but those changes aren’t necessarily based on the price your supplier pays for that energy.  A lot of the extra cost is premium to the supplier, rather than simply due to changes in wholesale energy prices.

The bottom line is you could be paying a whole lot more than you need to.

Let’s break that down a little.

There are five elements that make up an average energy bill – the energy itself is only one of those:

Source: Energy UK*
*Rounding error from source

The cheapest fixed rates for electricity for domestic and small business users are around 12p per kWh inc VAT. Some suppliers charge as much as 20p or 25p per kWh if you’re on a standard, default or variable tariff.

Here’s the killer fact – on the wholesale energy market the cost of electricity averages at around 4p to 5p per kWh.  That’s a pretty small percentage in the context of a 25p per kWh standard or default tariff !

Its the operational costs and margins that differ greatly, ranging from a few pence on a fixed deals to 10p per kWh or more on a standard, default or variable tariff.

If this shocks you, it might be a good time to look for a supplier that charges a price more closely linked to the wholesale price, or one which makes all the elements of its bill transparent.

Given the mark ups, standard, default or variable tariffs can give you some flexibility but should be used with real caution.

Whether you want live online quotes or just want to compare to get a better price, it is easy to see that you could save on your business energy at energy-scanner.com.