The Rise and Rise of Non Commodity Costs

It could be argued the wholesale electricity market is low, when compared to previous years. So surely that means customers are seeing great savings right? Wrong.

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Many business customers choose fully fixed agreements, meaning all they see on the bill is unit rates, standing charges, and perhaps Climate Change Levy and Vat. It makes for a nice and simple looking invoice, but in the background there are various charges that make up those unit rates, some of which are increasing at an alarming rate, and those increases more than outweigh the savings on wholesale electricity.

These charges however rarely make the headlines, so when customers hear about ‘falling energy prices’ they’re surprised when their renewal quote shows an increase.

These other charges are known as ‘non-commodity costs’. In other words, other charges that make up a customer’s bill, that aren’t actually for the electricity itself.

Here we’ll highlight just a few of the charges customers should be aware of, what they are and how they’ve changed.

Feed-in-Tariff (FiT)

Across the country you will no doubt have noticed solar panels on roofs of houses and commercial buildings, or wind turbines popping up. For each unit of electricity these generate the Government pays a subsidy called the Feed-in-Tariff.

However one could argue it’s not really the Government that pays this at all. It’s you (and everyone else) that pays for it, as suppliers pay towards the fund, and in turn this is charged to consumers.

All customers contribute to this ‘pot’ from which the subsidies are paid out. The trouble is, with more solar panels installed and wind farms being built, this pot has needed to grow bigger every year, so the contribution required also needs to grow.

Renewables Obligation (RO)

Licensed electricity suppliers have an obligation to buy a proportion of the electricity they supply from renewable sources. Suppliers meet this obligation by purchasing Renewable Obligation Certificates (ROCs). Therefore the Renewable Obligation charge is calculated by multiplying the obligation percentage suppliers have to meet by the ‘buy out price’ per MegaWatt hour (MWh).

The problem with RO charges is that the percentage of supply and buy out price have both increased year on year, causing the RO rate to increase exponentially.

Balancing Services Use of System (BSUoS)

National Grid are required to reconfigure their system to divert power where and when it’s needed. The costs of which are passed on to generators and suppliers, and in turn to customers.

With the increased amount of renewable energy from solar panels and wind turbines for example, generation of electricity is switching from a few generators to a large number of generators, so there are more generators to manage.

Also as renewable electricity is more dependent on the weather, which is unpredictable at the best of times, balancing the system is much harder than it used to be, and costs more.

As an example, if the demand from the grid falls, wind farms may be paid to stop producing excess electricity!

Electricity Market Reform (EMR)

EMR is a Government policy to incentivise investment in secure, low-carbon electricity, improve the security of Britain’s electricity supply and improve affordability for consumers. EMR charges involve Contracts for Difference (CfD) and Capacity Market charges (CM).

Contracts for Difference:
This is where a low carbon electricity generator has a contract with the Government to be paid the difference between the market price and the agreed ‘strike price’. In other words, they are paid a subsidy for producing low carbon electricity. In turn, this cost is passed on to suppliers and consumers.

At the moment, CfD charges are relatively low, however they present a large risk to suppliers as it is not clear how much these charges will be in the future.

Capacity Market:
This is a support scheme which pays generators for providing capacity to the grid, or consumers for reducing their consumption during peak demand.

Like CfDs, the actual costs of the Capacity Market to consumers is not yet known, so poses a large risk to suppliers when incorporating these into their quotations.

Transmission Use of System Charges (TNUoS)

TNUoS chargs recover the cost of installing and maintaining the transmission system in England, Wales, Scotland and offshore. Customers pay a charge depending on the geographical area they are in.

These charges have increased significantly, and are projected to continue increasing for the foreseeable future.

Energy Intensive Industry (EII) charges

In 2015 the Government announced its intent to reduce the impact of renewable policies (RO and FiT) on the costs of electricity for the most Energy Intensive Industries such as metal casting, heavy manufacturing and mining (to name a few) so they can remain internationally competitive.

Although not yet State Aid approved (as of Sept 2016) this exemption would allow those companies operating in Energy Intensive Industries to be exempt from RO and FiT, yet non-exempt customers (the vast majority) will pay more to cover the cost.

Some have projected the impact to be up to £1.10/MWh to be added to RO, and £0.30/MWh to FiT, a total of £1.40/MWH, or 0.14p/kWh.


Please contact us if you require any assistance or clarification with the above, or for guidance on selecting the best electricity contract for your company.

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