Compared to previous years, we can see that the wholesale electricity market in the UK is low. More specifically, average wholesale electricity prices for the past 5 years have fallen more than 14%, with the strongest downturn from 2013 to the end of 2016, when prices declined more than 23%.
Given that, you'd think that businesses should see some great savings on their energy bills as well, right? Well, not really. . .
In fact, quite the opposite is happening — energy bills are rising at an alarming pace.
And if you’re wondering why is that happening, simply put, that’s the non-commodity charges at work. In other words, other charges that make up your energy bill that are NOT for the electricity itself.
But you don’t hear that too often in the news, do you?
Not surprising, because hearing about “falling energy prices” is more exciting than hearing about the fact that by 2020, non-commodity costs could account for up to 60% of your electricity bill.
Yes, you’ve read that correctly.
By 2020, non-commodity costs could account for up to 60% of your electricity bill.
To put that into perspective, a site with an annual consumption of 5GWh will see an annual increase in cost of around £140,000 between 2016 and 2020, even if the wholesale cost of electricity does not change.
Even though this is not meant to be a comprehensive walk-through the entire suite of non-commodity charges, here we’re going to focus on some of the most important ones and explore the impact they have on your organisation.
Therefore, what follows is a breakdown of some additional items that may appear on your bill and where that money goes, together with the forecasted rise of these costs in the future.
BUSINESS AS USUAL OCT 2017 - MAR 2021 FORECAST
a) Transmission Network Use of System (TNUoS) Charges
This covers the cost of transmitting electricity from power stations to grid supply points across the high-voltage, high-volume transmission system. Transmission Network Use of System (TNUoS) charges recover the cost of installing and maintaining the transmission system in England, Wales, Scotland and offshore.
b) Balancing Services Use of System (BSUoS) Charges
This charge relates to the costs of the day to day operation of the transmission system, with the purpose of balancing the grid.
Basically, this is a sophisticated operation that makes sure there is always just the right amount of electricity pulsing around the network – not too much, creating wastage, and not too little, causing blackouts.
As you might imagine, with the increased amount of renewable energy from solar panels, wind turbines, micro CHP’s and so on, generation of electricity is switching from a few generators to many generators which, in turn, leads to a much larger number of generators to manage.
Also, as renewable electricity is more dependent on the weather, which is unpredictable at best, balancing the system is much harder than it used to be and costs more.
c) Distribution Use of System (DUoS) Charges
DUoS charges are levied by the UK’s regional DNOs (Distribution Network Operators) and go towards the operation, maintenance and development of the UK’s electricity distribution networks. More so, it covers the cost of distributing electricity from the national grid to your premises via a local distribution zone.
d) Transmission and Distribution Losses
This charge pays for the cost of electricity that is lost as it passes through the network. These losses occur in the process of supplying electricity to consumers due to technical and commercial reasons.
a) Feed in Tariff (FiT)
The FiT is a policy mechanism designed to accelerate investment in renewable energy technologies. The Government launched this tariff in April 2010 with the intent of rewarding those customers who have access to their own small-scale power generation (for example, by installing wind turbines or solar panels).
According to Ofgem, the FiT scheme is available for anyone who has installed, or is looking to install, one of the following technology types up to a capacity of 5MW, or 2kW for micro-CHP:
1. Solar photovoltaic (PV)
3. Micro combined heat and power (CHP)
5. Anaerobic digestion (AD)
The great thing about the FiT scheme is that following an initial investment, not only will you be saving money by generating your own electricity, but you’ll also get paid for the electricity you generate. And in case you generate more than you need, you could be paid for driving that energy back into the grid.
b) Renewables Obligation (RO)
The RO charge was designed to encourage large-scale renewable electricity generation and help the UK government meet its 2020 target of having 15% of energy generated from renewable sources.
c) Capacity Market (CM)
The CM charge is intended to incentivise investment in more sustainable, low-carbon electricity capacity at the least cost for energy consumers.
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.
Download our FREE extensive guide to non-commodity costs management in the UK to learn more.
In the next article, we’re going to talk about DUoS charges: what are they, how do they affect your business and what you can do about it.
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