Energy Charges & Costs

Unit rate

Key takeaways

A unit rate is the price you pay for each unit of energy you use, measured in kWh.

Your total bill depends on unit rate + standing charge, plus any extra charges your contract includes.

Unit rates can vary by contract type, usage pattern, and whether pricing is all-inclusive or pass-through.

What is a unit rate?

A unit rate is the rate you’re charged per unit of electricity or gas you use. It’s measured in kilowatt hours (kWh). Ofgem explains unit rates this way when breaking down what’s included in an energy bill.

On bills and quotes it’s normally shown as:

p/kWh (pence per kilowatt hour)

Unit rate vs standing charge

Most business energy pricing has two core parts:

Unit rate (variable): what you pay for energy used (per kWh)

Standing charge (fixed): what you pay per day to have the supply live

A simple comparison framework:

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

This matters because a tariff can look good on one line and still be expensive overall:

a lower unit rate paired with a higher standing charge

a higher unit rate paired with a lower standing charge

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

What counts as “one unit”?

For both electricity and gas, suppliers bill you based on kWh.

Electricity is straightforward: the meter records electricity usage and it’s billed in kWh.

Gas is often measured on the meter as volume (for example cubic metres), then converted into kWh for billing. The unit rate still applies to the kWh figure shown on your bill.

Why unit rates vary on business energy

Contract type and risk

Fixed rates and variable rates are priced differently.

With a fixed rate, the supplier is taking on more price risk, which can change how the unit rate is set.

With variable or flexible pricing, the unit rate can move with market conditions (and sometimes with contract terms).

How you use energy

If your usage is mostly during certain times (for example daytime-heavy sites), your costs can look very different to a site that runs mainly overnight.

Some tariffs apply:

a single unit rate (flat rate)
two unit rates (day/night)
multiple time bands (more common when time-of-use pricing is involved)

“All-inclusive” vs “pass-through”

Two business contracts can both show a unit rate, but include different things.

All-inclusive pricing bundles more charges into the unit rate and standing charge.

Pass-through pricing can exclude some charges from the unit rate, then bill them separately.

This is why comparing unit rate alone can be misleading if the quote isn’t like-for-like.

Credit and site factors

Suppliers price based on commercial risk and operational factors too, such as:

payment method and credit profile
meter type and data requirements
site history (where available)

These don’t always show clearly in the quote, but they can influence the unit rate you’re offered.

How to compare unit rates properly

When you’re reviewing quotes, use this checklist:

1) Confirm the unit rate format

Is it:

one unit rate (flat)
day/night unit rates
time-of-use rates

If you have more than one rate, make sure the quote tells you when each rate applies.

2) Check if prices are shown ex-VAT or inc-VAT

Business quotes are often shown excluding VAT.

If you’re comparing two offers and one is inc-VAT while the other is ex-VAT, you’ll get the wrong answer.

3) Ask what’s included in the unit rate

This is especially important if the contract is pass-through.

A “cheap” unit rate can still lead to a higher bill if significant charges sit outside it.

4) Compare total cost using your own usage

The fairest comparison is based on your own consumption.

If you have a recent bill (or annual usage figure), you can estimate:

Annual energy cost = unit rate × annual kWh

Then add:

Standing charge × 365

And finally account for any extra charges if your quote separates them out.

Quick examples (simple)

If your unit rate is 25p/kWh and you use 10,000 kWh in a year:

Energy usage cost = 0.25 × 10,000 = £2,500

That’s before standing charges and anything else your contract includes.

Even a small difference in unit rate can matter at higher usage.

A 2p/kWh difference over 100,000 kWh is £2,000.

FAQ

Is unit rate the same for electricity and gas?
The concept is the same (p/kWh), but the rates are different because the underlying markets and costs are different.

Can I choose the lowest unit rate and ignore everything else?
Not safely. You need to consider the standing charge and whether anything is billed separately.

Is the unit rate always fixed in a fixed contract?
Usually, yes for the parts included in the fixed price. But some business contracts still pass through certain charges separately, so always check what the “fixed” part actually covers.