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The Truth About Your Energy Bill: Understanding Non-Commodity Costs and Charges


NCC electric

Breaking Down the Different Types of Non-Commodity Costs in Your Energy Bill


Non-commodity costs (NCCs) are essential elements of energy bills that business consumers need to understand. As of now, NCCs account for over 60% of electricity bills and nearly 45% of gas bills. Despite fluctuations in the energy price in recent years attributed to COVID-19 related events, third-party costs have remained stable.


The rising trend of non-commodity costs is contributing to the increasing energy prices. Although the term 'non-commodity expenses' is frequently used in the energy sector, it can be hard to grasp what it means and how it affects businesses. As such, it is necessary to recognise the different types of non-commodity costs to help you better understand your energy bills and minimise charges.


This post provides a comprehensive overview of the various types of non-commodity costs in energy bills. Understanding these NCCs and their impact on your business will assist you in making informed decisions to optimize your energy consumption and lower your utility expenses.


WHAT ARE NON-COMMODITY COSTS?


Non-commodity costs, also known as third-party charges, are additional expenses that are not directly related to the energy a customer consumes but are necessary for delivering energy to properties and maintaining the national grid. These costs are made up of several components, including distribution costs, transmission costs, metering costs, environmental and social levies, and taxes. Non-commodity costs vary by country and region, and they are typically regulated to ensure that energy providers are not charging excessive fees to consumers. It is essential to be aware of non-commodity charges as they make up a significant portion of energy bills, especially for businesses. Understanding these costs can help consumers take steps to reduce their energy consumption and lower their overall utility expenses.


The cost of non-commodity charges has rapidly increased in recent years, with a notable change occurring between 2011 and 2022. In 2011, these costs accounted for only 36% of the overall energy cost; however, as of 2022, non-commodity charges contribute to over 70% of the total bill. This trend of rising non-commodity costs is expected to continue to increase over the next decade, with projections indicating that these charges could make up to 80% of the energy cost by 2031. The increase in non-commodity charges will significantly impact both commercial and residential consumers, making it vital to understand the various components of these costs and how to minimize them.



TRANSMISSION AND DISTRIBUTION COSTS


Transmission and distribution costs are expenses associated with the operation and maintenance of the UK's national electrical network that are incurred by energy suppliers. These costs vary among suppliers and are primarily influenced by the type of power plant.


For example, solar and wind power generators have less reliable output than gas or nuclear power plants. As the UK moves towards renewable energy, the cost of system balancing is likely to increase.


The main components of transmission and distribution costs include -

DUoS (Distribution Use of System Charges), which covers the costs of maintaining the distribution networks, cables and ensuring a stable energy supply to homes and offices.


TNUoS (Transmission Network Use of System) is a fee that customers pay to help maintain the national grid, including pylons and substations.


Finally, BSUoS (Balancing Services Use of System) covers any expenses incurred in balancing the amount of electricity flowing through the network. Generating more energy than required can be wasteful, and insufficient supply can lead to blackouts or power cuts.


GOVERNMENT LEVY AND TAXES


These taxes are imposed to help fund various government initiatives and green energy programs.


For example, FiT (Feed-in Tariff) is a fee established to fund smaller renewable generation projects that sell energy back to the grid.


CCL (Climate Change Levy) is a tax aimed at increasing efficiency and reducing emissions that businesses pay based on their energy usage. The more energy a business uses, the higher the CCL cost.


CfD (Contracts for Difference) is another tax introduced to support low carbon energy providers and stimulate low carbon investment. It replaced the older Renewables Obligation tax in 2019.


Additionally, the Capacity Market (CM) scheme helps ensure a steady supply of energy during peak periods. The cost of this scheme depends on how much extra electricity is used over the winter period. Understanding these government levies and taxes is essential for consumers to better manage their energy consumption and expenses.



changes over the years
NCC GAs

In recent years, there has been a trend for energy suppliers to shift some of the non-commodity costs, such as distribution and transmission costs, from the unit rate to the standing charge.


The unit rate is the cost you pay for each unit of energy you use, whereas the standing charge is a fixed daily charge to cover the supplier's fixed costs, such as meter readings and general administration.


By moving some of the non-commodity costs to the standing charge, the unit rate can be reduced, which may be attractive to consumers. However, this can also make comparing tariffs more challenging, as you need to factor in both the unit rate and the standing charge to get a clear understanding of the cost. It is essential to review different tariffs carefully to ensure you are getting the best deal to suit your energy needs and usage.


 

We hope this overview of non-commodity costs in energy bills has been informative and helpful.


At The Smart Energy Company, our energy experts can help you navigate the complexities of energy bills, and find the best deal for your needs. Whether you're a small business owner or a large corporation, we can provide a quote for your next energy renewal and help you save money on your energy bills. Don't hesitate to contact us today to speak with one of our energy experts and learn how Smart Energy Company can help you optimise your energy consumption and expenses.


info@smart-energy.uk | 0151 459 3388

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