How third party charges impact your energy bill

Over recent years, there has been a significant increase to non-commodity costs, also known as third party charges. These costs can represent over 60% of a business’ electricity bills, though this does vary depending on location, supply type and consumption profile.

We understand that the jargon and acronyms that you see on your energy bills can be confusing. To help you to decode some of this information and better understand the varying costs that make up a typical business electricity bill, we’ve created an interactive example bill to walk you through some of the different energy and non-energy costs.

The tool works by clicking on the different charges, which will then reveal more information about what they are, who they are paid to and how they may contribute to your overall electricity costs.

Please note, this is an example of a typical pass-through electricity bill (where third party charges are not fixed in advance on contract delivery). It is not intended to represent an actual electricity bill, as each energy supplier will use its own format for bills, which may vary from the example below.

How are energy bills typically broken down?

Every energy bill will include the commodity cost. This is the actual price you are paying for the electricity itself. Then, there are the non-commodity charges. Please note, if your third party costs are fixed (not pass through) it is most likely that these will not be shown as separate lines in your final bill.

What are the different types of non-commodity charges?

Broadly speaking, there are two types of non-commodity charges:
1) network charges; and,
2) environmental charges.

Network charges comprise of distribution charges, transmission charges and also incorporate some smaller additional charges.

Transmission charges cover the cost charged by National Grid for the transportation of electricity from generators to the distribution networks. These are paid to National Grid and currently make up approximately 12% of a business’s fully delivered electricity costs.

Distribution charges cover the cost charged by the Distribution Network Operator (DNO) for the transportation of electricity across the distribution network, the point at which it leaves the transmission system until it reaches the meter.. These are paid to the DNO and currently make up about 20% of a business’s fully delivered electricity costs

In addition to network charges, there also the environmental charges. These include a range of levies that are applied to the cost of electricity to help the UK to meet its carbon reduction targets. The main environmental charges consist of:

  • Renewables Obligation, which is levied on suppliers for the support of large-scale renewable electricity projects and paid to HMRC;
  • Feed in Tariff, which is levied on suppliers to incentivise the uptake of small-scale renewable and low-carbon technologies and paid to Ofgem;
  • Contracts for Difference, a charge levied on suppliers, introduced to replace RO and designed to support investment in low-carbon generation, which is also paid to HMRC;
  • Capacity market, a cost to cover payments to generators and large-scale energy users for availability to ensure security of electricity supply, which is paid to generators and large-scale energy users;
  • Climate Change Levy, which is a tax charged to every kWh of energy used introduced to cover the cost of increasing energy efficiency and reducing carbon emissions.

On average, environmental charges make up 28% of a business’s fully delivered electricity costs.

Use the interactive electricity bill, to explore the impact of non-commodity charges on your business electricity bill.