Energy Charges & Costs

Standing Charge

Key takeaways

A standing charge is a daily fixed cost you pay even if you use no energy.
It contributes to the costs of running and maintaining the energy system and supplier services.
The “cheapest deal” depends on the standing charge + unit rate together, not either one in isolation.

What is a standing charge?

A standing charge is a fixed daily fee on your gas or electricity bill that you pay for the supply being live, even on days you use 0 kWh. Ofgem explains it as a supplier-set daily charge that applies regardless of usage.

On business bills it’s typically shown as p/day, and you can have:

one standing charge for electricity
one for gas
sometimes more than one if you have multiple meters (each meter can carry its own fixed costs)

Standing charge vs unit rate

Business energy pricing usually has two headline parts:

Standing charge (fixed): daily cost for the connection and service
Unit rate (variable): price per kWh you use

A simple comparison framework:

Estimated cost over a period = (standing charge × days) + (unit rate × kWh used)

This is why you can see:

a lower unit rate paired with a higher standing charge, or
a lower standing charge paired with a higher unit rate

Neither is automatically “better” until you plug in your likely usage.

What does the standing charge cover?

Standing charges exist because some costs don’t depend on how many kWh you use.

Ofgem describes standing charges as covering things like:

moving energy through cables and pipes to homes and businesses
supplier running costs (for example, customer service)
contributions to some social and environmental schemes

The UK Parliament’s House of Commons Library summarises it as recovering the costs required to provide energy company services, including maintaining the wires, pipes and cables and the operational costs of running the business.

Business note: depending on your contract, some costs might be bundled into the standing charge and unit rate (“all-inclusive”), or billed separately (“pass-through”). The label “standing charge” is real, but what’s included can differ by contract structure.

Why does the standing charge vary for businesses?

Common reasons include:

Network region and supply characteristics

Costs vary by area and by the type of supply. Standing charges are one way these fixed costs are recovered.

Meter setup

A more complex metering arrangement can mean different cost structures. Multiple meters usually means multiple fixed daily charges.

Supplier pricing approach

Suppliers can price the same total cost in different shapes (more in the standing charge, less in the unit rate, or vice versa). That’s why you should always compare the total projected cost.

Contract type (all-inclusive vs pass-through)

If you’re on a pass-through style contract, some charges can sit outside the standing charge and unit rate, which can make the standing charge look “cheaper” on paper but not necessarily cheaper overall.

Can a “low standing charge” tariff make your bills cheaper?

Sometimes, but it depends on usage.

Ofgem itself has said it can’t remove the underlying costs from the system, only move them from one part of the bill to another, which is exactly why a lower standing charge often comes with a higher unit rate.

So “low standing charge” can suit lower-use sites if the unit rate increase doesn’t outweigh the saving.

VAT: does it apply to the standing charge?

Yes. The standing charge is part of the supply of energy.

Most business energy is charged at the standard rate of VAT, but HMRC sets “de minimis” thresholds where small supplies can qualify for the reduced rate, depending on circumstances.

HMRC’s VAT Notice 701/19 sets the de minimis thresholds as:

Electricity: 33 kWh per day or 1,000 kWh per month
Gas: 145 kWh per day or 4,397 kWh per month

How to compare quotes properly (quick checklist)

When comparing business energy offers, ask for the quote in a way that lets you compare like-for-like:

Confirm the standing charge and unit rate for electricity and gas
Estimate annual cost using your kWh (or your last 12 months of bills)
Ask what’s included vs pass-through (so you don’t miss extra charges)
Check meter count (standing charge is often per meter)
Compare on total cost, not just “cheaper unit rate” or “cheaper standing charge”

FAQ

Do I pay standing charge if my business is shut for a week?
Usually yes, because it’s charged per day for having the supply active, even if you use no energy.

Is standing charge capped for businesses?
Business contracts are not covered by the domestic price cap framework. Standing charges are contract- and supplier-dependent for businesses. (The definition and purpose still broadly apply.)

Should I always choose the lowest standing charge?
Not always. A lower standing charge can be offset by a higher unit rate. Compare using your expected kWh.