Understanding the Variability
in Electricity Unit Rates and
Daily Standing Charges

“I have 10 schools in my Multi-Academy Trust, why do they all have different electricity unit rates and daily standing charges?”

While the electricity itself is a fundamental component of the final price that you pay (Circa 35%), a significant portion of your electricity bill (Circa 65%) is attributed to “non-commodity”, or “non-energy” costs.

These non-commodity costs include expenses related to infrastructure, transmission, distribution of electricity, plus various regulatory charges. These costs are multifaceted and vary at meter level, leading to the observed differences in unit rates and standing charges.

Before we delve into the key factors that contribute to the vast variability in electricity unit rates and daily standing charges, it is important to understand that the actual cost for electricity, is likely the same in each of our prices.

One reason for the vast variability in non-commodity costs is that a number of components making up the non-commodity costs (as listed below) are based on your specific usage patterns at meter level. For example, daily / annual consumption patterns are considered and directly impact the charges attracted.

Infrastructure and Maintenance:

• The costs associated with building and maintaining the infrastructure that delivers electricity to your doorstep are substantial. These include power lines, transformers, and other equipment. Areas with more extensive or newer infrastructure may experience lower non-commodity costs, reflecting their unit rates.

Transmission and Distribution

• The electricity grid involves both transmission (long-distance transport) and distribution (local delivery to homes and businesses). Costs related to these processes can vary based on geographical location, with remote areas often incurring higher expenses due to the need for more extensive transmission networks.
  
  

Network Losses

• Energy is lost during transmission and distribution, a phenomenon known as network losses. Older or more complex infrastructure may experience higher losses, impacting overall costs. Investments in newer technologies and grid enhancements can help mitigate these losses, influencing the non-commodity costs. Lower voltage networks have higher network losses.

Regulatory Charges

• Governments and regulatory bodies impose charges to fund various initiatives, such as renewable energy programs, energy efficiency projects, and grid maintenance. Different regions may have distinct regulatory frameworks, leading to disparities in these charges.

Market Dynamics

• The electricity market operates on supply and demand. Regions with higher demand during peak hours may experience increased costs due to the need for additional infrastructure to meet that demand.

Summary

Understanding the variability in electricity unit rates and daily standing charges requires recognising the intricate web of non-commodity costs. From infrastructure investments to regulatory charges, each component plays a crucial role in determining the overall cost of electricity at the meter level.

As consumers, being aware of these factors can empower us to make informed decisions about our energy consumption and explore ways to contribute to a more efficient and sustainable energy future.