A guide to non-commodity costs
It won’t have been lost on many charities and businesses that energy costs have risen again. The question is why?
With the wholesale cost of electricity comparable to previous years, why do your bills keep increasing?
The problem is that the non-commodity cost element of your bills increases frequently and these costs are not itemised nor apparent. This publication provides a guide to them.
Most businesses are familiar with government taxes that are applied to energy bills to support green energy generation. The most familiar of these is the Feed in Tariff and Climate Change Levy, otherwise known as FiTs and CCL. Initially, FITs added 0.26 pence to the tariff of an electricity bill, today, it can be as high as 15% of the entire bill.
2015 saw the introduction of these charges and they continue to impact business energy costs, particularly electricity. Of particular importance are CfD (Contracts for Difference) and CM (Capacity Market). What are these charges and how will they affect me? Electricity contracts include elements that are ‘passed through’ by the supplier to the end user. These charges are typically levied in support of investment in renewable electricity generation – such as the Renewables Obligation (RO), Feed in Tariff (FiT), Contracts for Difference (CfD), and Capacity Market (CM) Charges.
What are these charges and how will they affect me?
Electricity contracts include elements that are ‘passed through’ by the supplier to the end user. These charges are typically levied in support of investment in renewable electricity generation – such as the Renewables Obligation (RO), Feed in Tariff (FiT), Contracts for Difference (CfD), and Capacity Market (CM) Charges.
DID YOU KNOW?
63% of electricity bills are now made up of non-commodity costs
DID YOU KNOW?
Cutting your energy consumption is the most effective means of cutting energy costs
Caution: Do you know if your renewal offer includes some, or all these costs?
Non-commodity costs explained
Energy costs divide into 3 categories:
- The wholesale energy cost,
- Transmission and distribution costs,
- A variety of government taxes and levies.
These charges are ‘passed-through’ by your energy supplier and collected via your energy bills.
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
Renewables Obligation (RO)
- The RO charge was introduced to help fund large- scale renewable electricity generation and help the UK 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 FiT and CfD.
(DUoS) - Distribution Use of System
- DUoS charges are levied by the UK’s regional DNOs (Distribution Network Operators)
- They support 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
Contracts for Difference (CfD)
- CfD electricity generators are contracted with the government-appointed Low Carbon Contract
- Company (LCCC), which guarantees them a fixed price for their exported electricity
- This is paid for by electricity consumers and is collected by their supplier
- This scheme has replaced the RO and FiT charges
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.
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 a commitment to delivering 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.
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%
Line Losses
- This is the quantity of electricity that is lost during transmission and distribution of electricity across the electric grid.
- It is referred to as a line loss. Because the supplier must purchase sufficient energy to cover the projected estimated consumption (including line loss amount), this loss gets divided and passed on to customers.
Average commodity wholesale cost
- Commodity prices are applicable to specific periods throughout the year, with rates often higher during the winter.
- The majority of wholesale electricity trading takes place directly between buyers and sellers at a price agreed in private. Benchmark prices for the trades are published on subscription to reference agencies.
AAHEDC (Assistance for Areas with High Electricity Distribution)
- Assistance for areas with high electricity distribution costs (AAHEDC) Assistance for areas with high electricity distribution costs (AAHEDC) replaces an earlier arrangement, commonly referred to as ‘Hydro Benefit’.
- The North of Scotland is currently the only area specified to receive assistance.
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