News
24 Jul 2023
The wholesale cost of the gas or electricity that you use now makes up a shrinking proportion of your total energy bill (less than 50% in most cases). The remainder is made up of non-commodity costs (also known as non-energy costs). These costs include network charges, environmental and social levies, and supplier operating costs, including your supplier’s margin. Over recent years, non-commodity costs have risen steadily as the UK invests in ageing network infrastructure, supporting decarbonisation (the shift from gas to electricity) and accelerating the growth of renewable energy.
Although these charges appear on your supplier bill, most are not set or controlled by your supplier. Instead, they are passed through from third-party parties, such as network operators, other industry participants and HMRC.
The graphics below show the typical split between wholesale (commodity) costs and non-commodity costs within gas and electricity bills. Note that energy markets are volatile and prices change daily, so the exact split is subject to change. Our Market Watch experts track the fundamentals impacting both wholesale energy prices and non-commodity costs, providing our customers with a daily analysis of price movements to help inform procurement decisions.
As non-commodities now account for more than half of total energy spend for many customers, understanding how they work is critical to managing budgets and mitigating rising costs.
Non-commodity electricity costs, in particular, have increased significantly in recent years and this trend is expected to continue. These increases are largely unavoidable and are driven by:
To support the transition to a low-carbon economy, additional charges are embedded within electricity bills to fund renewable energy schemes and environmental initiatives. These charges play a key role in accelerating renewable asset deployment and reinforcing the electricity system to meet future demand.
These charges fund government environmental schemes designed to support energy efficiency, reduce carbon emissions, and meet climate change commitments. They include levies and mechanisms such as:.
These charges cover the infrastructure required to transport energy from where it is generated to your sites. They fund the maintenance, reinforcement and expansion of transmission and distribution networks.
Network charges include:
These costs vary dependent on location, voltage level and demand profiles.
These costs ensure the electricity system remains stable and secure. These fund services used to balance supply and demand in real time, manage system constraints, and respond to fluctuations caused by unexpected changes in electricity generation or customer demand.
They are essential to support grid reliability, particularly as more intermittent renewable generation increases.
These charges cover the installation, operation and maintenance of energy meters, as well as the collection and processing of consumption data used for billing and settlement purposes.
These costs fund the administration and governance of the energy market. They include the operation of market bodies, regulatory oversight, industry code management and compliance and enforcement activities.
While both gas and electricity share some common elements, there are important differences due to the nature of each system, the infrastructures and policy mechanisms involved.
Electricity bills typically include a wider range of non-commodity charges, reflecting the complexity of balancing supply and demand, supporting renewables, and maintaining a secure and resilient network. .
The sections below summarise the main non-commodity components commonly included within a customer bill.
In summary, the increase in the non-energy components of electricity costs reflects the commitment to addressing climate change and promoting a greener future. They play a crucial role in financing the vital initiatives needed for the country’s transition to a low-carbon economy and achieving its environmental objectives.
This means that these charges are likely to be here to stay, so how can you mitigate the impact of them?
Reduce energy consumption – This is the most obvious way to reduce energy costs. A 10% reduction in overall general energy consumption is widely accepted as achievable with some focus and attention on good energy management. Talk to us if you would like to understand more about our energy behavioural awareness training.
For a greater reduction in energy consumption, consider an energy audit, which will provide a comprehensive review of the energy used across your site(s) to gain insight into areas where cost effective energy, operating and carbon savings can be achieved. The audit will identify a range of practical low-cost and no-cost measures, together with a range of longer-term investment measures, summarising the quantification of the costs, savings, and estimated return on investment of each opportunity identified.
Review your capacity charges – For half-hourly settled meters you reserve a set amount of capacity on the network. You pay a fee for every kVA you reserve (capacity charge). If you are reserving too much, this will cost you money – you may also be paying higher standing charges as a result. Do be mindful though, if you reduce your capacity and need it later on (perhaps for electric vehicles or switching from gas to electricity) it may not be available for you to take again.
Strategic procurement – Ensure that you are securing your contract at the right time, when wholesale rates are lower as this can offset some of the future non-commodity increases. Also consider passing through non-commodity costs. You won’t get budget certainty, but you also won’t pay the risk premium suppliers build in to fix them.
Consider on-site generation and storage options – Technologies such as solar PV and battery storage can reduce reliance on power from the grid, which in turn means fewer non commodity charges to pay for. Find out more about our PPA solution which allows you to access new technologies; such as Combined Heat and Power (CHP), solar PV, battery storage, EV chargers and wind turbines without the upfront capital investment.
Non-commodity components associated with electricity costs have experienced a significant rise in recent years.
