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Non-Commodity Cost Changes

Non-commodity costs are rising year on year and now cover an incremental percentage of the energy bill. With additional non-commodity costs being introduced into the bill as of 2nd May 2017, business energy users nationwide will now feel the pinch as they open their energy bills.

What is a non-commodity cost?

The non-commodity cost (also known as ‘third party costs’) includes the other charges that make up the energy bill that are not for electricity (the commodity) itself. These compulsory charges cover the cost of delivering electricity, balancing the grid and all network costs. Also included are taxes and levies, primarily from the government in order to support the development of renewable energy and reduce carbon emissions. The main non-commodity costs include charges such as: Transmission Network Use of System (TNUoS), Distribution Use of System (DUoS), Renewable Obligation (RO), Contract for Difference (CfD), Feed in Tariff (FiT) and Capacity Market (CM) to name but a few.

Non-commodity charges – what is changing and how will they impact your business?

Non-commodity costs explained

Transmission Network Use of System (TNUoS)
  • These charges recover the cost of installing and maintaining the transmission system in England, Wales, Scotland and offshore
  • It covers the cost of transmitting electricity from power stations to grid supply points across the high-voltage, high-volume transmission system
Distribution Use of System (DUoS)
  • DUoS charges are levied by the UK’s regional DNOs (Distribution Network Operators)
  • They contribute to the operation, maintenance and development of the UK’s electricity distribution networks
  • It also covers the cost of distributing electricity from the national grid to your premises via a local distribution zone
Balancing Service Use of System (BSUoS)
  • BSUOS charges represent the costs incurred by National Grid for their actions in maintaining the balance of demand and quality and security supply on the network
  • BSUoS charges are daily charges and are paid by suppliers and generators based on their energy taken from or supplied to the National Grid in each half-hour Settlement Period
Climate Change Levy (CCL)
  • This tax was put in place to encourage a reduction in carbon emissions.
  • Every April this charge is reviewed and increases by a small amount, however this charge will increase when the CRC charge is abolished
Carbon Reduction Commitment (CRC)
  • CRC is a mandatory scheme aiming to support the target to reduce achieve an 80% reduction in UK carbon emissions by 2050
  • It is due to be eliminated in 2019
Capacity Market (CM)
  • A scheme to secure additional winter capacity from both generators and Demand Side Response providers
  • Successful bidders receive stable payments in return for commitment to deliver energy when required
  • This is needed to help secure electricity supplies for the future. The subsidy payment for these generators is paid for by electricity consumers on their consumption in the winter period
Renewables Obligation (RO)
  • The RO charge was introduced to encourage large-scale renewable electricity generation and help the UK government meet its 2020 target of having 15% of energy generated from renewable sources
  • It closed to new generators in April 2017 but will be replaced by FiTCfD
Feed-in-Tariff (FiT)
  • FiT is a subsidy scheme introduced in 2010 to support small-scale renewable generation
  • The subsidy payment for FiT generators is paid for by electricity consumers
  • The approximate cost increase in 2016/17 was over 10%
Feed-in-Tariff Contracts for Difference (FiTCfD)
  • CfD generators have a contract with the government-appointed Low Carbon Contract Company (LCCC), guaranteeing them a fixed price for their exported electricity
  • The subsidy payment for these generators is paid for by electricity consumers through their supplier
  • This scheme has replaced the RO and FiT charges

Cost of Inaction Report

Inenco’s latest research the Cost of Inaction Report is now available to download. Showing businesses the costs incurred by failing to optimise demand schedules to avoid the increasing non-commodity costs, including DUoS red (and amber) bands, the newly introduced CM levy and triad exposure.

Invoice Validation & Management

With the application and increase of new charges, ensuring correct billing is paramount! One in five business energy bills contain mistakes and collectively, these inaccuracies could be costing businesses half a billion pounds.

Businesses can recover incorrect charges for the past 6 years and the entire process can be managed end-to-end to make it simple and stress-free.

As reporting experts, Inenco have helped thousands of organisations with all aspects of their energy data, from proactively managing consumption to retrospectively checking billing accuracy. Our bureau services enable you to outsource all elements of the invoice management process, from validation through to payment of the suppliers.



History of the energy bill

Back in 2012, approximately 75% of your business’ electricity bill covered the actual cost of wholesale electricity (commodity cost) with only 25% accounting for network and distribution charges, government taxes and levies (non-commodity costs).

Compared to previous years, we can see that the UK wholesale electricity market is low. More specifically, average wholesale electricity prices for the past 5 years have fallen more than 15%. In 2013, the government upped taxes and levies, but as the wholesale market was low, businesses didn’t notice a difference in their overall cost.

Today, the commodity element only makes up around 50% of your bill, meaning, the non-commodity component has risen dramatically to cover the remaining 50%! As the wholesale market is much more volatile now, non-commodity costs will become more visible over the next few years as they are rising much faster.

By 2020 for the majority of consumers, non-commodity costs could account for around 60% of your electricity bill.

To put that into perspective, a site* with an annual consumption of 10 GWh will see an increase in cost of around £221k from 2016 to 2020, even if the wholesale cost of electricity does not change.

*Based on 10GW high voltage, baseload only consumption site with a CCA – in South Wales, Western Power (SWALEC) DNO.