Author: Joy | Energy Markets Analyst, 3.6+ years in the energy industry

Last reviewed: 18 October 2026

Neither a lower unit rate nor a lower standing charge is automatically better for your business.

A unit rate is the amount you pay for every kilowatt-hour (kWh) of energy your business uses. A standing charge is a fixed daily cost that normally applies whether you consume energy or not.

As consumption increases, small differences in the unit rate can become increasingly important. For businesses with low, seasonal or irregular usage, the standing charge can represent a much larger proportion of the total bill.

The practical rule is:

Compare the expected annual cost using your actual consumption. Do not choose a business energy tariff because one number looks cheaper.

Quick Answer

• High annual consumption: unit-rate differences can have a significant financial impact.
• Low annual consumption: the standing charge can represent a larger proportion of the bill.
• Seasonal or irregular use: a low or zero standing charge may be worth investigating.
• Moderate consumption: calculate both options rather than relying on the headline price.
• Multi-rate or half-hourly supply: compare the complete commercial pricing structure.
• Best approach: use your actual or forecast annual consumption and calculate the expected annual cost of each contract.

Ofgem distinguishes between unit rates and standing charges when explaining energy costs, while commercial energy contracts can include additional charges depending on the supply, meter and contract structure.

Unit Rate vs Standing Charge at a Glance

A tariff with the lowest unit rate can still produce the higher annual bill if its standing charge is sufficiently high.

The reverse can also happen.

That is why the most useful comparison is rarely:

24p/kWh vs 25p/kWh

or:

50p/day vs 90p/day

The question that matters is:

What will each contract cost my business over the year based on how much energy we actually expect to use?

What Is a Unit Rate?

The unit rate is the amount charged for each kilowatt-hour of electricity or gas consumed.

For example, if your electricity tariff charges:

24p/kWh

and your business consumes:

10,000 kWh per year

the consumption element would be:

10,000 × £0.24 = £2,400

before adding the standing charge and any other applicable costs.

Electricity meters generally record consumption in kWh. Gas meters often record volume, which is then converted into kWh for billing.

Why the Unit Rate Matters More as Consumption Increases

Small differences become significant when multiplied across large amounts of energy.

A difference of just 1p/kWh represents:

This is why relatively small unit-rate differences deserve much more attention when Energy Solutions reviews high-consumption Business sites.

A small shop using 8,000 kWh and a manufacturing site consuming 800,000 kWh should not make their tariff decisions in the same way.

What Is a Standing Charge?

A standing charge is normally a fixed daily amount charged for keeping an energy supply available.

It usually applies whether the premises is:

• open;
• closed;
• using large amounts of energy;
• or consuming almost nothing.

HMRC describes standing charges as part of the supply of electricity or gas and associates them with the infrastructure required to provide the supply.

The basic calculation is:

Daily standing charge × number of days = annual standing charge

For example:

90p/day × 365 = £328.50 per year

before the business consumes any electricity or gas.

Why Standing Charges Matter More for Low-Use Businesses

Suppose two tariffs differ in standing charge by:

40p/day

Over a full year:

£0.40 × 365 = £146

That £146 difference remains roughly the same regardless of whether the business consumes 5,000 kWh or 500,000 kWh.

The financial value of a lower unit rate, however, depends entirely on consumption.

That is why standing charges can have a disproportionate impact on:

• small offices;
• low-use retail premises;
• seasonal businesses;
• secondary sites;
• properties closed for long periods;
• temporarily vacant commercial units.

For a high-consumption industrial site, £146 may be relatively minor.

For a business with an annual electricity cost of £1,500, it is much more significant.

Is a Lower Unit Rate or Lower Standing Charge Better?

It depends on the relationship between your consumption and the difference between the two tariff structures.

There is no reliable rule that says:

“Always choose the lowest unit rate.”

And there is no universal rule saying:

“A zero-standing-charge tariff must be cheaper.”

The stronger commercial decision is normally the option producing the lower overall cost at your expected consumption, assuming the contracts are otherwise genuinely comparable.

How to Compare Two Energy Tariffs Properly

For a straightforward single-rate supply, begin with:

Estimated annual cost = annual kWh × unit rate + daily standing charge × 365

Use the same consumption figure for both quotations.

This is essential.

If Tariff A is calculated using 10,000 kWh and Tariff B is calculated using 15,000 kWh, you are not making a like-for-like comparison.

You are comparing two different consumption assumptions.

Worked Example: Lower Unit Rate vs Lower Standing Charge

Consider these two illustrative tariffs. They are examples rather than current supplier offers.

Tariff A has the cheaper unit rate.

Tariff B has the cheaper standing charge.

Which tariff wins depends on consumption.

At lower consumption, Tariff B’s standing-charge saving outweighs its higher unit rate.

As consumption increases, Tariff A’s 1p/kWh advantage eventually becomes more valuable than the £146 annual standing-charge difference.

Look at the Effective Annual Cost Too

Another useful way to assess the tariffs is to divide the simplified annual tariff cost by annual consumption.

At 10,000 kWh:

Tariff A:
£2,728.50 ÷ 10,000 = 27.29p/kWh effective cost

Tariff B:
£2,682.50 ÷ 10,000 = 26.83p/kWh effective cost

Tariff A advertises the lower unit rate.

But at that level of consumption, Tariff B still produces the lower effective annual cost.

That is precisely why headline p/kWh figures should not be assessed in isolation.

What an Energy Solutions Specialist Checks Before Comparing Two Tariffs

When Energy Solutions compares commercial energy quotations, we first establish whether they are genuinely comparable.

That normally means checking:

• verified or forecast annual consumption;
• unit rates;
• standing charges;
• meter and supply information;
• contract start date;
• contract duration;
• contract end date;
• whether each price is fixed or variable;
• metering charges where applicable;
• other pass-through or contract-specific costs;
• commission or service costs;
• termination and renewal conditions.

We then apply the same consumption assumption to both quotations and calculate the expected cost.

This is important because two offers can look similar on the first page while producing materially different results over the full contract.

A difference of 0.3p/kWh may receive most of the attention, while a much larger difference in standing charges is overlooked.

Likewise, two contracts with apparently similar prices may not be comparable if one is fixed for 12 months and the other for 36 months.

Our starting question is therefore not:

“Which supplier has the lowest unit rate?”

It is:

“Which contract produces the stronger overall commercial position for this particular business?”

What Is the Break-Even Point Between Two Energy Tariffs?

The break-even point is the annual consumption at which two different tariff structures produce the same simplified annual cost.

This is particularly useful when:

• one tariff has a lower unit rate;
• while the other has a lower standing charge.

Use:

Break-even usage = annual standing charge difference ÷ unit rate difference

Using the previous example:

Standing-charge difference

90p − 50p = 40p/day

40p × 365 = £146/year

Unit-rate difference

25p − 24p = 1p/kWh

1p = £0.01/kWh

Break-even point

£146 ÷ £0.01 = 14,600 kWh/year

Therefore:

• Below 14,600 kWh: Tariff B costs less.
• Above 14,600 kWh: Tariff A costs less.
• At 14,600 kWh: the simplified costs are equal.

A Practical Warning From Commercial Energy Comparisons

A break-even calculation should not create false precision.

If a restaurant expects to use 14,000 kWh but extends its opening hours, adds refrigeration or experiences higher customer demand, its consumption could move beyond the break-even point.

When two offers are very close, Energy Solutions would also look at:

• contract duration;
• what is genuinely fixed;
• renewal conditions;
• metering;
• supplier service;
• planned business changes;
• termination provisions.

Saving £10 on a theoretical annual calculation does not necessarily justify choosing a less suitable commercial agreement.

Why the Lowest Unit Rate Is Not Always the Cheapest Tariff

This is one of the most common misunderstandings we encounter when businesses compare energy quotes.

Imagine a business receives two offers.

One says:

22.5p/kWh

The other says:

23.1p/kWh

The first quotation immediately appears cheaper.

But before recommending it, we would ask:

• What is the standing charge?
• Are both contracts the same length?
• Do they start on the same date?
• Are there additional metering charges?
• Is the quoted rate fully inclusive or can certain charges be passed through?
• Are the same costs included?
• What happens when the contract expires?
• Is broker commission incorporated differently?

Ofgem notes that business-energy pricing includes more than wholesale energy itself. Network charges, environmental costs and other components can contribute to the final bill.

A business contract therefore cannot be judged properly from one line on a quotation.

Real Energy Solutions Experience: When the Lower Unit Rate Cost More Overall

Energy Solutions encountered exactly this situation with an anonymised hospitality client.

The business had received a competing offer from another broker with a lower headline unit rate and was close to signing.

Instead of comparing the p/kWh figures alone, we requested the business’s consumption information and rebuilt the comparison around the expected annual cost.

The competing quotation’s lower unit rate was offset by higher standing charges and a less favourable overall cost structure.

Once both offers were compared on the same basis, the Energy Solutions option was estimated to save the business approximately:

£900–£1,200 per year

despite not having the lowest headline p/kWh rate.

The customer ultimately chose the Energy Solutions option.

This result does not mean every tariff with a higher unit rate will be cheaper.

It demonstrates something more useful:

The cheapest-looking rate and the lowest overall commercial cost are not always the same thing.

For that reason, we compare the whole contract rather than ranking quotations by the number that looks most attractive in an email.

Which Businesses May Benefit More From a Lower Unit Rate?

Businesses with higher annual consumption generally have more to gain from relatively small reductions in p/kWh.

Examples can include:

• manufacturers;
• restaurants;
• workshops;
• warehouses;
• larger retail premises;
• laundries;
• refrigeration-heavy businesses;
• energy-intensive operations.

But business type alone is not enough.

It would be misleading to say:

“Restaurants should always choose the lowest unit rate.”

A small seasonal restaurant and a seven-day operation running commercial refrigeration throughout the day can have completely different consumption profiles.

Business type provides context. Annual kWh provides the evidence.

Which Businesses May Benefit More From a Lower Standing Charge

A lower standing charge can become more valuable where annual consumption is relatively low, particularly when comparing business energy.

That can include:

• small offices;
• low-use shops;
• seasonal businesses;
• secondary premises;
• premises regularly closed for extended periods.

Some suppliers also offer tariff structures designed around this issue.

EDF, for example, currently advertises an eligible small-business Zero Standing Charge option. However, eliminating the standing charge can be accompanied by a higher unit rate.

The phrase zero standing charge may sound attractive.

Your consumption determines whether it actually saves money.

Don’t Compare Unit Rate and Standing Charge in Isolation

For a straightforward supply, unit rate and standing charge are the two most visible numbers.

For a proper commercial comparison, we would check considerably more.

Check Your Annual Consumption

Use a full 12 months of consumption data where possible.

Avoid relying on:

• one winter bill;
• one summer bill;
• your monthly Direct Debit;
• a rough estimate.

A Direct Debit shows how much is being collected.

It does not necessarily show how much energy the business actually consumes.

If the business is changing, the forecast should also be adjusted.

Adding:

• machinery;
• EV chargers;
• refrigeration;
• longer opening hours;
• additional production shifts

can materially change which tariff structure is more suitable.

Check the Contract Length

A tariff that appears £100 cheaper in year one is not automatically the stronger option if it commits the business to an unsuitable three-year agreement.

Ask:

• How long am I fixing the contract?
• What happens when the agreement ends?
• What can change during the term?
• What happens if the business relocates?
• What are the termination provisions?

Ofgem distinguishes between fixed, variable, flexible, deemed and out-of-contract business-energy arrangements.

Deemed and out-of-contract rates are generally more expensive than negotiated contracts, making contract timing particularly important.

Check Your Meter Type

A standard single-rate electricity supply can often be assessed using a straightforward annual calculation.

A multi-rate supply requires more information.

For separate day and night rates:

Annual usage cost = day kWh × day rate + night kWh × night rate

Then add standing charges and any other applicable costs.

For half-hourly and more complex supplies, consumption profile can materially affect pricing.

A factory with significant demand during particular periods should not be assessed in exactly the same way as a small office simply because both have an annual kWh figure.

A 2027 Metering Change Businesses Should Know About

Metering requirements are becoming increasingly relevant to commercial contract decisions.

From 1 September 2027, designated small and medium non-domestic premises entering a new fixed-term energy contract must already have, or agree to have, a smart or advanced meter installed.

Suppliers must begin communicating the change from January 2027.

If you are considering a longer-term commercial contract and still have older metering infrastructure, it is worth understanding what may be required at your next renewal.

Check Whether the Quote Is Fixed or Variable

Ofgem explains that standard fixed-rate business contracts generally fix agreed unit rates and standing charges for the term.

Variable pricing can change according to the mechanism set out in the agreement.

However, businesses should still read the contract carefully.

The word fixed should not automatically be interpreted as meaning that every possible charge associated with a complex commercial supply can never change.

Some agreements can allow specified third-party or pass-through charges to vary.

Ask:

Exactly which elements of this quotation are fixed?

Check VAT and Climate Change Levy

Tax treatment should also be considered when analysing energy costs.

The main Climate Change Levy (CCL) rate from 1 April 2026 is:

• electricity: 0.801p/kWh
• natural gas: 0.801p/kWh

CCL applies to many commercial supplies, although exemptions and reduced-rate arrangements can apply.

VAT also depends on the circumstances.

HMRC normally treats non-qualifying business energy at the standard VAT rate, but small quantities of fuel and power can qualify for different treatment.

For electricity, HMRC’s de minimis threshold is:

33 kWh per day or 1,000 kWh per month

For piped gas:

145 kWh per day or 4,397 kWh per month

There is also a temporary change affecting qualifying electricity supplies in Great Britain.

From 1 October 2026 to 31 March 2027, qualifying electricity supplies are temporarily zero-rated for VAT.

That is why we would not simply add “20% VAT” to every business-energy comparison without checking the supply’s actual tax treatment.

Check the Full Contract Terms

Before committing to an agreement, review:

• start date;
• end date;
• renewal provisions;
• notice requirements;
• termination conditions;
• payment terms;
• additional fees;
• broker commission;
• metering requirements;
• what is fixed;
• what may change.

Ofgem also reminds businesses that there is generally no cooling-off period after agreeing a business energy contract, including agreements made by phone.

That makes understanding the agreement before acceptance particularly important.

Why Your Live Business Quote May Differ From an Online Benchmark

There is no single UK business unit rate or standing charge.

Government non-domestic pricing data is published by consumption band because business pricing can vary significantly according to customer size and usage.

Commercial comparison websites may show another number.

A supplier may quote your business something different again.

That does not automatically mean one of the figures is wrong.

They may be measuring different things.

A published market figure might represent:

• an average across a particular supplier panel;
• businesses within a specific consumption band;
• quotes captured during a particular period;
• historical prices already paid by businesses;
• or a set of assumptions that do not match your premises.

Your live quotation can also be affected by:

• postcode;
• annual consumption;
• meter type;
• consumption profile;
• contract duration;
• credit assessment;
• market timing;
• supplier appetite.

This is why Energy Solutions treats online rates as market context, not as a guaranteed price that every business should receive.

The relevant question is:

How does the live quotation available to this business compare on a like-for-like basis with the alternatives available now?

A Useful 2026 Market Example

In our September 2026 analysis of microbusiness electricity rates, we referenced an indicative market benchmark of approximately:

26.4p/kWh

with a standing charge of:

91.3p/day

At 91.3p/day:

£0.913 × 365 = £333.25 per year

before any electricity is consumed.

At annual consumption of 10,000 kWh and a unit rate of 26.4p:

Usage cost: £2,640
Standing charge: £333.25
Simplified total: £2,973.25

In that simplified example, the standing charge represents more than 11% of the pre-tax annual amount.

That is substantial enough to affect a tariff comparison.

At 100,000 kWh, however, the same £333.25 standing charge becomes proportionately much smaller compared with the consumption cost.

Once again:

Consumption changes the answer.

How Energy Solutions Compares Business Energy Tariffs

When Energy Solutions reviews commercial energy quotations as part of energy procurement, we do not simply rank suppliers from the lowest p/kWh to the highest.

We assess:

• actual or forecast annual consumption;
• unit rates;
• standing charges;
• meter type;
• supply information;
• contract length;
• what is fixed;
• applicable additional costs;
• renewal timing;
• supplier options;
• commission;
• commercial terms.

We then calculate the expected cost using consistent assumptions.

This gives the business something much more useful than:

“Supplier A is 0.4p cheaper.”

It helps answer:

“What is this contract likely to cost my business, and what exactly am I committing to?”

That distinction has mattered in real Energy Solutions negotiations, including cases where an apparently cheaper unit rate would have resulted in a higher overall annual cost.

Want to Compare Your Own Quotes?

If you already have two business-energy offers, send Energy Solutions the quotations together with your annual consumption.

We can compare the unit rates, standing charges and wider contract structure to assess which option offers the stronger overall commercial position.

Compare Business Energy Prices

Frequently Asked Questions

Is a lower unit rate always better for a business?

No.

A lower unit rate reduces the cost of every kWh consumed, but a higher standing charge or other commercial costs can offset that advantage.

Compare the expected annual cost using the same consumption and contract assumptions.

Is a lower standing charge better for a small business?

It can be, particularly where consumption is low or seasonal.

However, if the same tariff carries a materially higher unit rate, it may become more expensive as consumption increases.

Calculate the total expected annual cost.

How do I calculate my annual standing charge?

Multiply the daily standing charge by the number of days in the year.

For example:

50p × 365 = £182.50/year

How much can a 1p/kWh difference save?

At the same annual consumption:

• 10,000 kWh = £100
• 50,000 kWh = £500
• 100,000 kWh = £1,000
• 1,000,000 kWh = £10,000

What is the break-even point between unit rate and standing charge?

It is the level of annual consumption at which two different tariff structures produce the same simplified annual cost.

Where one tariff has the higher standing charge but lower unit rate:

Break-even usage = annual standing-charge difference ÷ unit-rate difference

Make sure both figures are converted into consistent units before calculating.

Do business electricity and gas tariffs both have standing charges?

Many do, although pricing structures vary between suppliers and contracts.

Some products may have no standing charge and recover more of the cost through the unit rate.

Always compare the total expected cost.

Can a business negotiate its standing charge?

Available pricing depends on the supplier, meter, consumption, contract structure and prevailing market conditions.

Rather than assuming the standing charge can be negotiated independently, ask for alternative tariff structures and compare their annual cost.

Does the Ofgem price cap limit business standing charges?

No.

The domestic Ofgem energy price cap does not protect business-energy contracts.

Commercial tariffs are priced separately.

Does Climate Change Levy apply to the standing charge?

CCL is generally charged according to taxable units of energy rather than as a daily standing charge.

From 1 April 2026, the main rate is 0.801p/kWh for electricity and natural gas, subject to applicable exemptions and reliefs.

Should I compare prices before my business contract ends?

Yes.

Reviewing your contract before expiry gives you time to:

• understand your current position;
• verify consumption;
• obtain quotations;
• compare contract structures;
• review terms;
• avoid a rushed decision.

Ofgem notes that deemed and out-of-contract pricing is generally more expensive than negotiated commercial contracts.

Final Takeaway

A lower unit rate becomes increasingly valuable as consumption rises.

A lower standing charge can be more important for low-use, seasonal or intermittently occupied premises.

Neither is automatically better.

The most reliable starting point is:

Calculate both tariffs using your actual or realistic forecast annual consumption, add the standing charges, check what else is included and compare the contracts using the same assumptions.

Then review:

• contract duration;
• meter requirements;
• additional costs;
• tax treatment;
• renewal conditions;
• what is fixed;
• termination terms.

That tells you something the headline p/kWh figure cannot:

what the tariff is actually likely to cost your business.

Energy Solutions has seen this distinction matter in real commercial negotiations, including a hospitality case where the quote with the lower headline rate was not the lower-cost option once the complete annual structure was compared.

If your contract is approaching renewal, compare suitable business-energy options before committing and make the decision based on the total commercial cost, not simply the cheapest-looking number on the quotation.