Hidden Charges in Your Energy Bill & How to Avoid Them
Many businesses assume their energy bill is simply a reflection of how much electricity or gas they’ve used. However, hidden charges can often inflate costs, making it harder to manage expenses effectively. So many times, I see businesses either on the wrong rates or with an energy consumption plan that doesn’t align with their business ambitions. More often than not, this results in the end user paying more—simply due to a lack of education and understanding.
Understanding these charges can empower businesses to make informed decisions and reduce unnecessary costs, ensuring that their energy plan supports their long-term goals.
Common Hidden Charges in Energy Bills
Standing Charges
Standing charges are a daily fixed cost that you pay, regardless of how much energy you use. While they are typically clear on your bill, it's important to understand whether a high or low standing charge is beneficial for your business. This fee covers the maintenance of the supply infrastructure and can vary significantly between suppliers.
A low standing charge may seem attractive, but it could result in a higher unit rate for your energy usage, potentially making it more expensive in the long run. Conversely, a higher standing charge might reduce your unit rate, but the overall cost could still be higher if your energy consumption is low.
How to Avoid It: Compare different suppliers to find one with a standing charge and unit rate structure that aligns with your energy consumption. If your usage is low, a lower standing charge may not always be the best option if it increases your unit rate significantly. Look for a balance that suits your specific energy needs.
Capacity Charges (Availability Charges)
If your business uses a half-hourly meter, you'll be charged based on the maximum demand you declare. If your demand exceeds this limit, you may face penalty charges. Many businesses overestimate their demand or fail to track their consumption patterns, meaning they could end up paying for more capacity than they actually need.
At Vitalis, we encourage businesses to closely monitor and understand their energy usage data. This ensures you're only paying for the capacity you actually need, rather than overpaying for unused demand.
How to Avoid It: Regularly review your declared capacity to ensure you're not overpaying for unused demand or unnecessarily exceeding your limits. Adjusting your agreed capacity to match actual needs can help lower these costs. By consistently tracking your consumption, you can optimise your energy procurement and avoid unnecessary charges.
Reactive Power Charges
Reactive power charges apply if your business consumes inefficient power, often caused by poor power factor correction. This happens when equipment like motors, air conditioners, or old machinery draws energy inefficiently, leading to additional charges from your supplier to cover these inefficiencies.
What is Power Factor Correction? Power factor correction involves optimising your electrical systems to improve energy efficiency, ensuring that the energy supplied to your business is used in the most effective way.
How to Avoid It: Consider investing in power factor correction equipment, such as capacitors, to reduce these charges. This investment can help optimise energy usage and lower your long-term energy costs.
Third-Party Charges
These charges include government levies, environmental charges, and network fees, such as:
Climate Change Levy (CCL) – a tax on business energy use.
Renewables Obligation (RO) – funding for renewable energy projects.
Balancing Services Use of System (BSUoS) charges – costs associated with balancing electricity supply and demand.
How to Avoid It: Check if your business qualifies for exemptions or discounted rates for these charges, such as those available to charities or specific industries.
Metering & Data Collection Charges
If your business has a half-hourly meter, additional charges may apply for the collection and aggregation of data about your energy usage. These charges allow suppliers to monitor and manage your energy usage but can add up over time.
How to Avoid It: Make sure you’re not overpaying for metering services. Some suppliers include these services in their rates, while others charge separately. Review your contract to ensure you're getting value for your money. If you're not actively using the data for energy management, it might be time to reconsider your metering setup.
Out-of-Contract Rates
If your energy contract expires and you haven’t arranged a new deal, you could be placed on expensive default or deemed rates, which can significantly increase your costs. These rates are often much higher than contracted rates, leading to unnecessary expenses for your business.
How to Avoid It: Keep track of contract end dates and begin negotiating new terms well in advance of expiration. It’s also essential to have someone who understands how the energy market is tracking. Entering into a contract at the wrong time or on the wrong terms can be very expensive. By staying informed and proactive, you can secure a more cost-effective deal that aligns with your business needs and market conditions.
Automatic Rollover Contracts
Some suppliers automatically renew contracts at higher rates if notice isn’t given within a specified period, locking you into a higher-priced deal. Additionally, some brokers, especially when you’ve signed a Letter of Authority (LOA), may renew contracts on your behalf without you being fully aware, further complicating matters.
While LOAs can be useful for collecting data and gaining insights into your energy usage, they should always be used with the customer’s best interests in mind. I personally use LOAs to collect valuable data and ensure you’re getting the most accurate and relevant information to manage your energy effectively. Unfortunately, some in the industry may not use LOAs responsibly, potentially leading to unwanted renewals or unfavorable terms.
How to Avoid It: Set reminders for contract renewals and compare rates from different suppliers before accepting an automatic rollover. Always be cautious when signing LOAs, and ensure the company you are dealing with has your long-term interests at heart. Proactive management of your energy contracts can help you avoid unexpected costs and ensure you’re getting the best deal.
How to Take Control of Your Energy Costs
Conduct a Regular Bill Audit: Review past bills to identify unexpected charges and challenge suppliers if necessary, if you can get your finance team to track them.
Negotiate Better Terms: Work with an energy consultant to secure more competitive rates and contract terms, ideally the consultant does really need to understand your business.
Improve Energy Efficiency: Reducing consumption not only lowers costs but also reduces exposure to certain charges. Efficient use of energy helps avoid excess demand charges and penalties.
Switch Suppliers When Necessary: If your supplier’s hidden charges are excessive or lack transparency, consider moving to a more competitive and transparent provider.
Final Thoughts
Energy bills can be much more complex than they initially appear. The important thing to remember is to choose wisely. Many businesses are driven primarily by cost, which at first glance might seem like the best option. However, when you dig deeper and consider the long term, is it truly as beneficial as it seems? The ultimate aim—my aim—is to reduce both your spend and consumption in the long run.
This may not always be achievable through procurement alone, especially as the energy market can sometimes be unstable. The best approach is to have a broader and more comprehensive commercial utility strategy, with procurement being just one piece of that puzzle. By doing this, you'll save money and free up future funds for reinvestment, staffing costs, and more.
Thank you for reading! For more insights and tailored commercial solutions on energy and utilities, visit: Vitalis Energy
