What Drives Business Electricity Prices?

There are many factors that can affect energy prices, meaning they can fluctuate regularly. But what causes these changes and how can you ensure your business is getting the best deal for its electricity?  

An electricity bill is made up of costs relating to your electricity consumption (known as commodity costs), and additional third-party charges (known as non-commodity costs). 

Wholesale Electricity Costs 

The majority of your business electricity bill is made up of the costs your energy provider pays for your electricity from the wholesaler. The total amount on your bill varies depending on how much electricity you use. 

System and Network Costs 

These charges cover the cost of using the electricity distribution and transmission networks and can vary depending on your business location. They include: 

• Transmission Network Use of System (TNUoS) – The cost for the supplier transporting and distributing your electricity along with the maintenance of the National Grid. 
• Distribution Use of System (DUoS) – Charges from the Distribution Network Operators (DNO) for installing and maintaining the local distribution networks. 

Tax and Levy Costs 

There are mandatory taxes and levies set by the Government which are aimed at encouraging renewable energy development and energy efficiency. These include: 

• Climate Change Levy (CCL) – This is an environmental tax on the energy businesses use, designed to encourage them to reduce their consumption and become more energy efficient in their operations. The amount of CCL tax paid will vary depending on the amount of energy used. 
• Value-added tax (VAT) – The standard rate of VAT for businesses is 20%, but it is possible to apply for a reduction if you meet certain criteria. Find out more about VAT and what you may be eligible for here.  
• Renewables Obligation (RO) – This scheme ensures that all licensed electricity suppliers are obliged to source a specified proportion of their electricity from renewable energy. Its aim is to encourage the deployment of large-scale renewable energy in the UK. 
• Feed-In Tariff (FiT) – The Government launched this scheme to support small-scale power generation e.g., wind turbines and solar panels. It encourages energy businesses to generate their own renewable, low carbon electricity. 
• Electricity Market Reform (EMR) – This aims to maintain security of supply while keeping energy bills affordable and increasing low-carbon generation. It includes two support schemes to incentivise the development of new projects.
• Capacity Market (CM) – This scheme was set up to ensure there is enough reliable energy available to meet the countries’ demand, while keeping electricity supplies at affordable prices. CM charges are based on your consumption during a specific time bracket in November to February; this determines your market share.
• Contracts for Difference (CfD) – Supports, incentivises, and pays low carbon generators to develop new projects. This cost varies annually depending on wholesale price fluctuations and the amount of CfD generation produced each year. 

There are a number of factors that affect the price of business electricity. 

Supply & Demand

The main commodity cost of your electricity is largely influenced by supply and demand, the months when the demand is higher, the supply will also cost more therefore directly impacting the electricity prices. For example, during winter months there is an increase in usage which is therefore reflected in the cost.  

Time of Day

The cost of electricity generation also fluctuates throughout the day, depending on demand. For example, day-time electricity rates will be higher than night-time electricity rates, due to the increased demand during typical business hours.  

Currency Movement

Electricity prices are affected by fluctuations in the value of currency and changes in exchange rates. Much of the UK’s electricity is imported from European countries such as France and the Netherlands, meaning currency movement could directly impact the prices. 

Supply Constraints

The availability of generation to match demand is not only impacted by the absolute level but also the available capacity. Plant outages, particularly in older infrastructure, can impact supply. 

Global Events

As electricity generation is a global operation, disruption such as political unrest and natural disasters can cause issues with the production and transportation of electricity, affecting the prices. 

If you are concerned about price fluctuations and how they may impact your business, talk to your supplier, who will be able to advise you on the best plan or tariff for you.  

Yü Energy has a range of different electricity plans designed to help businesses of all sizes manage their energy usage, with no hidden costs. 

Fixed Energy Plans 

Great for small to medium businesses who need a consistent energy plan for budget tracking, peace of mind and no additional hidden charges. Fixed Term contracts allow you to fix the amount per unit (kWh) that you pay for your energy. It does not fix the amount you pay each month, as this will vary depending on your usage, however, it does protect you from energy price increases for the duration of your contract. 

Part-Fixed Energy Plans (also known as pass through) 

At Yü Energy, we offer Part-Fixed contracts which are ideal for businesses who want more flexibility over how to manage their non-commodity costs whilst maintaining a fixed rate for their energy costs. For more information on our different tariffs, please visit our website. 

Prepayment Energy Plans 

Prepayment electricity plans help businesses take control of their energy and budget costs effectively. Using a prepayment smart meter, you will be able to top up and pay for your energy before you use it, making tracking your consumption easier than ever.  

Usually, prepayment rates are fixed, but this can vary depending on your supplier, so be sure to check this when signing a contract. 

Freedom Plans  

Perfect for businesses that require the flexibility to move their gas supply at short notice, our freedom plans only require a 30-day notice period, and you can switch to one of our fixed plans at any time.  

Freedom prices are fixed, but get reviewed regularly, so we’ll let you if your rates are set to change. 

Green Plans 

If you want to do your bit for the planet, our green plans use REGO-backed electricity from 100% sustainable sources, such as wind, solar and geothermal. Powering your business with green energy is a great way to boost your CSR, without the costly investment of installing renewable infrastructure.  

Find out more about going green with our renewable plans here. 

If you want more information about our contracts at Yü Energy, why not get a quick business electricity quote online?

Alternatively, give our friendly team a call on 0116 478 1220 to chat further about our plans and pricing.