Non-Commodity Costs: The Hidden Charges That Increase Commercial Energy Bills
When examining commercial energy bills, many business owners focus primarily on the unit rates for gas and electricity—the commodity costs that represent the actual energy consumed. However, lurking beneath these headline figures lies a complex web of additional charges known as non-commodity costs, which can account for up to 60% of a typical commercial energy bill. Understanding these hidden charges is crucial for businesses seeking to manage their energy expenditure effectively.
What Are Non-Commodity Costs?
Non-commodity costs encompass all the charges beyond the basic price of gas and electricity. These costs cover the infrastructure, regulation, and services required to deliver energy to your premises reliably and safely. Unlike commodity prices, which fluctuate with wholesale energy markets, many non-commodity costs are set by regulatory bodies and are largely unavoidable, regardless of which supplier you choose.
Network Charges: The Largest Component
The most significant portion of non-commodity costs comes from network charges, which fund the maintenance and operation of the UK’s energy infrastructure. For electricity, these include Distribution Use of System (DUoS) charges and Transmission Network Use of System (TNUoS) charges. DUoS charges vary by region and time of day, reflecting the cost of maintaining local distribution networks. TNUoS charges, meanwhile, fund the high-voltage transmission system that carries electricity across the country.
Gas customers face similar charges through Local Distribution Zone (LDZ) transportation costs, which cover the pipeline network delivering gas to commercial premises. These charges are typically calculated based on both capacity and consumption, meaning businesses with higher energy demands face proportionally higher network costs.
Government Levies and Environmental Programmes
Environmental and social programmes add another substantial layer to energy bills through various government-mandated levies. The Climate Change Levy (CCL) applies to most commercial energy users, designed to incentivise energy efficiency and reduce carbon emissions. Currently set at 0.775p per kWh for electricity and 0.465p per kWh for gas, CCL can represent a significant portion of smaller businesses’ energy costs.
Additional charges include contributions to renewable energy schemes such as the Renewables Obligation (RO) and Contracts for Difference (CfD), which support the UK’s transition to clean energy. The Capacity Market mechanism, designed to ensure adequate electricity generation capacity, also adds costs to commercial bills.
Metering and System Operation Charges
Every commercial premises requires metering infrastructure to measure consumption accurately, generating additional costs for meter rental, maintenance, and data collection. Half-hourly meters, mandatory for larger commercial consumers, incur higher charges than standard meters but provide more detailed consumption data.
The Balancing Services Use of System (BSUoS) charge funds National Grid’s role in balancing electricity supply and demand in real-time. This charge varies monthly based on system balancing costs and is applied to all electricity consumption.
Managing Non-Commodity Costs
While businesses cannot eliminate non-commodity costs, several strategies can help minimise their impact. Understanding your consumption patterns can help avoid peak-time network charges, particularly for electricity users subject to time-of-use tariffs. Implementing energy efficiency measures reduces overall consumption, thereby lowering absolute non-commodity costs.
For larger energy users, investigating exemptions and reductions available for energy-intensive industries can provide significant savings. Some manufacturing businesses may qualify for reduced Climate Change Levy rates or exemptions from certain environmental charges.
The Importance of Transparency
Many energy suppliers bundle non-commodity costs into their pricing structures, making it difficult for businesses to understand the true breakdown of their bills. When procuring energy contracts, insist on transparent pricing that clearly separates commodity and non-commodity elements. This transparency enables better budgeting and helps identify potential areas for cost optimisation.
Conclusion
Non-commodity costs represent a substantial and often underestimated component of commercial energy bills. By understanding these charges and their underlying drivers, businesses can make more informed decisions about energy procurement and consumption patterns. While these costs cannot be avoided entirely, awareness and strategic planning can help minimise their impact on your bottom line, ensuring your business maintains control over its energy expenditure in an increasingly complex regulatory environment.
Speak to Cibus Energy today to discuss your current energy costs and whether it is the right time to change suppliers.