Why is business electricity so expensive compared with domestic?

Business electricity costs more per kWh mainly because it is bought and priced as a commercial product: no price cap, extra taxes and levies, and a supplier pricing in business risk. Some of the gap is only apparent, because VAT is reclaimable.

The main reasons

• No cap. Household default tariffs are limited by Ofgem's cap. Business contracts are not. See why the cap does not apply to businesses.
• Climate Change Levy. Most businesses pay 0.801p/kWh from 1 April 2026, rising to 0.827p/kWh from 1 April 2027. Domestic users pay no CCL, and business supplies below 1,000 kWh a month are excluded too.
• VAT. Household electricity normally carries 5% VAT, and in Great Britain it is temporarily zero-rated from 1 October 2026 to 30 June 2027 (HMRC first announced 31 March 2027) under HMRC VAT Notice 701/19: fuel and power. Business use is charged at 20% unless it qualifies for relief, but VAT-registered firms generally reclaim it.
• Network and policy costs. Charges for the wires and levies are built into the price. They are explained in our page on non-commodity charges.
• Credit and contract risk. A supplier may price in the chance that a business closes or cannot pay.
• Intermediary fees. If a broker is paid through the unit rate, that cost sits inside your price. See broker commission.

Where the comparison can mislead

Domestic prices are usually shown with VAT already included, while business quotes are usually shown before VAT. When you compare, line up the like-for-like: both before VAT, or both after. Standing charges also differ in scale, because many business tariffs recover network capacity costs through them.

A worked example

A business uses 10,000 kWh at a quoted 26p/kWh before CCL and VAT.

• Energy: 10,000 × £0.26 = £2,600
• CCL: 10,000 × £0.00801 = £80.10
• Subtotal: £2,680.10
• VAT at 20%: £536.02
• Total: £3,216.12, an effective 32.2p/kWh

If the firm is VAT-registered and reclaims the £536.02, the real cost is £2,680.10, or 26.8p/kWh. So £536.02 of what looks like a premium is a cash-flow item.

Recent market figures

DESNZ's Quarterly Energy Prices put the Q2 2026 average non-domestic electricity price at 24.51p/kWh including CCL. That is an average across all sizes of non-domestic customers, and individual small sites can pay more or less. Our page on why business energy is so expensive goes into the market side.

What you can control

1. Avoid default or out-of-contract rates.
2. Check whether you qualify for reduced VAT or CCL exemption.
3. Ask what a broker is paid and where it appears in your contract.
4. Cut usage with the measures in saving energy in a small business.

Is it really dearer for every business?

Not always. Very large users negotiate directly and can pay much less per kWh than a small site, because fixed costs spread over more units. Small sites tend to carry the highest effective rates, which is why a one-person office may feel the difference most. It also helps to remember that businesses can often deduct energy as a running cost for tax, which households cannot, though that is a matter for your accountant.

Next steps

For a wider look at the differences, read business vs domestic energy.