Unit rate vs standing charge on business energy

When you compare business energy quotes, it’s tempting to go straight for the lowest unit rate. But every quote has two prices, and the one that looks best on the unit rate can end up costing more once the standing charge is added. This guide shows how the two interact, gives you a simple formula for the break-even point, and works through examples.

What is the difference between a unit rate and a standing charge?

The unit rate is the price you pay for each kWh of energy you use. The standing charge is a fixed daily amount you pay for each supply, whatever you use. Your bill is roughly the two added together, plus taxes.

• Unit rate: shown in pence per kWh. Ofgem notes it can vary with your location and the type of tariff you’re on.
• Standing charge: shown in pence per day. It covers fixed costs such as network use and maintenance, meter reading and government schemes. Not every business supplier uses one.

Our standing charges guide explains what the fixed charge pays for and why it varies.

Which matters more for your business?

The less energy you use, the more the standing charge matters. The more you use, the more the unit rate matters.

Here’s a simple illustration with a 50p a day standing charge and a 25p/kWh unit rate:

Annual use	Standing charge (365 days)	Unit charges	Standing charge share of total
3,000 kWh	£182.50	£750.00	19.6%
60,000 kWh	£182.50	£15,000.00	1.2%

For the low user, the standing charge is nearly a fifth of the bill. For the higher user, it barely registers. This is also why the government’s average price figures show the smallest businesses paying the most per kWh: DESNZ spreads standing charges across units used, and a small user has fewer units to spread them over.

How do you calculate the break-even point between two quotes?

When one quote has a higher standing charge but a lower unit rate, there is a level of usage at which the two cost exactly the same. Below it, the quote with the lower standing charge wins. Above it, the quote with the lower unit rate wins.

Break-even usage (kWh a year) = (difference in daily standing charges x 365) / difference in unit rates

Use the same units throughout, for example pence per day and pence per kWh.

If your annual usage is well above or below the break-even point, the choice is clear. If it’s close, other factors such as contract length or flexibility may matter more than price.

Which of two electricity quotes costs less? A worked example

These quotes are hypothetical, chosen to show the maths. They are not real prices.

• Quote A: standing charge 80p a day, unit rate 24.0p/kWh

• Quote B: standing charge 30p a day, unit rate 25.5p/kWh

• Difference in standing charges: 80p - 30p = 50p a day, or £182.50 a year.

• Difference in unit rates: 25.5p - 24.0p = 1.5p/kWh.

• Break-even: 18,250p / 1.5p = about 12,167 kWh a year.

Here’s what each quote would cost at different usage levels, before CCL and VAT:

Annual use	Quote A	Quote B	Lower-cost quote
5,000 kWh	£1,492.00	£1,384.50	B, by £107.50
8,000 kWh	£2,212.00	£2,149.50	B, by £62.50
12,167 kWh	£3,212.08	£3,212.09	About the same
20,000 kWh	£5,092.00	£5,209.50	A, by £117.50
50,000 kWh	£12,292.00	£12,859.50	A, by £567.50

How the 8,000 kWh row works for Quote A: (80p x 365) + (8,000 x 24.0p) = £292.00 + £1,920.00 = £2,212.00.

What about a tariff with no standing charge?

Add a third hypothetical quote to the example:

• Quote C: no standing charge, unit rate 28.0p/kWh

Ofgem has said that tariffs with lower standing charges will have higher unit rates, and this example follows that pattern. Using the same formula:

• C against B: (30p x 365) / (28.0p - 25.5p) = 10,950 / 2.5 = 4,380 kWh
• C against A: (80p x 365) / (28.0p - 24.0p) = 29,200 / 4.0 = 7,300 kWh

So, in this example:

• below 4,380 kWh a year, Quote C costs least
• between 4,380 and about 12,167 kWh, Quote B costs least
• above about 12,167 kWh, Quote A costs least

In this example, Quote C only makes sense for a very low user, such as a site that is empty for much of the year.

Does the same maths work for gas quotes?

The same maths works for gas. Again, these are hypothetical figures.

• Quote D: standing charge 45p a day, unit rate 6.2p/kWh
• Quote E: standing charge 20p a day, unit rate 6.6p/kWh

Break-even: (25p x 365) / 0.4p = 9,125 / 0.4 = about 22,813 kWh a year.

At 10,000 kWh, Quote E costs £733.00 and Quote D costs £784.25. At 50,000 kWh, Quote D costs £3,264.25 and Quote E costs £3,373.00. If you have both fuels, run the calculation separately for each supply, because the break-even point for your gas will be different from the one for your electricity.

Does the Climate Change Levy or VAT change the answer?

Usually not. Both taxes affect the two quotes in the same way:

• Climate Change Levy (CCL) is charged per kWh at the same rate whichever supplier you choose: 0.801p/kWh for electricity and gas from 1 April 2026. It isn’t charged on the standing charge. Adding it to both quotes raises both totals by the same amount.
• VAT is a percentage of the bill, 20% for most businesses and 5% for small de minimis supplies. It scales both quotes equally, so the lower-cost quote stays the same.

The exception is if the quotes don’t include the same things. If one quote includes CCL in its unit rate and the other adds it separately, make sure you compare like with like.

What is an effective rate per kWh?

A useful single figure for any quote is the effective, or all-in, rate:

Effective rate = unit rate + (daily standing charge x 365 / annual kWh)

For Quote A at 8,000 kWh: 24.0p + (80p x 365 / 8,000) = 24.0p + 3.65p = 27.65p/kWh.

This is the same idea behind the government’s average price figures. DESNZ publishes fully delivered prices, with standing charges spread across units used, so you can compare your effective rate with the average for your size band on our business energy prices page.

How do day and night rates change the comparison?

If you’re offered a two-rate tariff, you need one more input: how much of your electricity you use at night. Elexon’s settlement system has separate profile classes for single-rate and two-rate business meters, and a two-rate meter records day and night units separately.

Hypothetical example: a single-rate quote at 24.5p/kWh against a two-rate quote at 26.0p/kWh by day and 18.0p/kWh at night, both with the same standing charge.

• Your average two-rate price is: (day share x 26.0p) + (night share x 18.0p).
• With 30% of your use at night: (0.7 x 26.0p) + (0.3 x 18.0p) = 23.6p/kWh, which is lower than the single rate.
• The two-rate quote only costs less if more than about 19% of your use is at night, because 26.0p - (8.0p x 0.1875) = 24.5p.

Your meter readings will show your own split. If the standing charges differ too, work out the average unit price first, then use the break-even formula above.

What does the break-even maths not show?

The formula is a good starting point, but check these before you decide:

• Your real usage. Use the last 12 months of bills rather than a guess. If your business is growing, adding equipment or cutting hours, think about next year’s usage too.
• Other fixed charges. Larger sites on half-hourly meters can pay capacity charges in pence per kVA per day on top of the standing charge. A network charging statement lists these separately, so include them in both totals.
• Contract length. A leap year has 366 days, so standing charges add up to slightly more. Over a multi-year contract, also think about how certain your usage is.
• What’s fixed and what isn’t. Check whether both quotes fix the standing charge and unit rate for the whole term, or whether some costs can be passed through. See fixed vs flexible contracts.

If you’re renewing, our contract renewal guide explains when to act and what to check.

Frequently asked questions