Non-commodity energy costs – and what you can to do alleviate them
Non-commodity energy costs can have a significant impact on your business energy bill. In fact, non-commodity charges often make up more than half of a typical business energy bill. However, recent Government figures revealed that over half of senior UK energy professionals are “unsure or unaware” of the potential impacts that rising non-commodity costs can have on their firms.
Current energy price increases are being driven by increasing non-commodity energy charges, particularly with an ever-growing raft of government levies to support the UK’s transition to low-carbon generation.
Did you know? Non-commodity energy costs could account for up to 60% of your electricity bill by 2020.
With new non-commodity charges being added to energy bills, these charges now account for around 50% of your energy bill. This is expected to increase to 60% in the coming years.
Government policies set to increase non-commodity charges
Government policies are forecast to add around £55.07/MWh to electricity invoices by April 2020 – 33% more than April 2018 prices. These policies include:
- Contracts for Difference low-carbon subsidy
- Green policies to support renewable generation
- The Climate Change Levy
What are non-commodity energy costs?
Non-commodity energy costs are the costs that are incurred with the purchase and supply of energy other than the actual energy unit costs. Non-commodity energy costs include support schemes, environmental costs and system and network charges, such as:
Transportation and distribution
- Transmission Network Use of System (TNUoS) – these charges recover the cost of installing and maintaining the transmission system in England, Wales, Scotland and offshore. The charge covers the cost of transmitting electricity from power stations to grid supply points across the high-voltage, high-volume transmission system.
- Balancing Services Use of System (BSUoS) Charges – BSUOS charges represent the costs incurred by National Grid for balancing the demand, quality and security of the energy the network.
- Distribution Use of System (DUoS) Charge DUoS charges go towards the maintenance, operation, installation and development of the UK’s electricity distribution networks.
Commissions, Taxes and Government Levies
- Renewables Obligation (RO) – the RO charge was implemented to encourage large-scale renewable electricity generation. The subsidy for renewable obligations id paid for by consumers through their suppliers.
- Feed in Tariff (FiT) – Launched in April 2010, this policy rewards customers who use their own small-scale power generation, such as wind turbines and solar panels. Not only do companies save money by generating their own electricity; they also get paid for the electricity they generate.
- Capacity Market – this scheme aims to secure additional winter capacity by incentivising investment in more sustainable, low-carbon electricity capacity at the least cost for energy consumers.
- Contracts for Difference (CfD) – Introduced as part of the Electricity Market Reform (EMR) programme, the CfD reduces energy generators’ and customers’ exposure to volatile wholesale prices and protects
- Climate Change Levy – find out more about the CCL here.
- VAT on electricity
How to alleviate increasing non-commodity charges
Although non-commodity costs are on the rise, this also opens opportunities for more savings. For example, although network and distribution charges are likely to increase to upgrade the UK’s energy infrastructure to cope with more diverse generation, consumers can choose to move their consumption away from peak charging periods to save on costs.
The National Grid’s Transmission Network Use of System (TNUoS) charges are the most expensive of the peak-time costs. Here’s how your organisation can mitigate the effects of Triad charges.
Energy demands and costs can also be offset through on-site generation. If you have battery storage, standby generators and other power-generating mechanisms, you can participate in one of National Grid’s balancing services.
The benefits of long-term energy management
At Smarter Business, we help our customers stay up to date and budget accordingly by providing regular forecasts of non-commodity energy costs along with policy and regulation updates.
By helping you develop a long-term energy strategy, we can incorporate various measures and tactics to help you keep your energy costs down despite any increases in non-commodity energy costs. Get in touch with an expert energy consultant today.