Business Energy Charges Explained: A breakdown of the charges, and why bills can only drop so far

Although the layout will vary from supplier-to-supplier, there are some standard components that can be found on most business energy bills. This includes details about the business and their energy meter(s) e.g. account number, meter numbers as well as the contract type and end date. 

Gas and electricity bills also state the amount of energy used during the billing period (and whether this is based on an estimate or accurate meter reading), the charge for this usage, any outstanding fees owed from previous billing periods, and a full breakdown of these charges. 

Most of those elements are pretty self-explanatory, particularly when it comes to gas as there are far fewer non-commodity charges to consider. However, when it comes to electricity the myriad different charges – and why business energy customers have to pay them – are less easy to understand.  

So in this article, we’re going to take a brief look at exactly what each of the different charges that go into the price of business electricity supply are, why they are there, and, importantly how much they each account for of the total electricity bill.  

• Understanding the energy supply process
• Breaking down business energy charges 
• Commodity Charges 
• TPC/Non-Commodity Charges
• Why is the cost of energy so high right now? 
• How to get the best business energy rates

Understanding the energy supply process

First, before we go into the actual breakdown of charges on a business energy bill, it’s worth understanding what the energy supply chain looks like – as knowing what the production/distribution/supply process looks like makes it easier to understand specifically what of the different charges relate to. 

Energy production vs energy supply vs energy consumption 

One thing that often causes confusion is that energy bills don’t (necessarily) fall in line with the cost of energy production. For example, many people mistakenly believe that GB Energy will guarantee lower energy bills.  

Regardless of whether the energy used is produced through fossil fuels (coal, oil, natural gas), nuclear, or renewables, it still needs to go through the same processes before it can be utilised by the end customer.  

Breaking down business energy charges

The simplest way to break down the charges is to separate them into two categories: 

• Commodity cost – The wholesale cost of the power/gas 
• Non-commodity costs – Everything else 

Commodity cost (direct cost of the energy consumed)

Responsible for the largest portion, but still less than 50% of the total energy bill (~41% at the time of writing), is the energy average wholesale cost, i.e. the price of the actual gas/electricity consumed. 

One of the main reasons why business energy bills remain high is because such a large portion – almost 60% – is made up of non-commodity charges, also known as Third Party Costs (TPCs). 

Non-commodity costs (indirect costs of supplying the energy)

Although the wholesale cost of energy (electricity and gas) may fluctuate – sometimes with a huge impact on the price of bills as the recent energy crisis has illustrated – over half the cost of a business energy bill is made up of a standing charge that covers all non-energy prices, known as non-commodity or Third Party Costs (TPCs). 

Key TPCs include: 

• Distribution Use of Systems (DUoS)  – Amounting to over 12% of the total cost of energy, this fee goes towards the cost of operating and maintaining the regional electricity network 
• Transmission Network Use of Systems (TNUoS) – A further ~4% goes towards the cost of installing and maintaining the transmission system 
• Balancing Services Use of Systems (BSUoS) – Another 5-6% goes towards the cost of balancing supply and demand across the national transmission network 
• Capacity Market (CM) – Making up ~3% of the total cost, CM is part of the government’s Electricity Market Reform package, and was set up to make sure there is enough reliable energy available to meet the country’s demands. CM charges are calculated based on consumption during winter peak periods, so the impact will be dependent on your consumption profile. 
• Renewables Obligation (RO) – Introduced by the Government to support large-scale renewable electricity generation in the UK, RO accounts for almost 16% of the total energy cost 
• Contracts for Difference (CfD) – Responsible for 5-6% of the total cost, which goes towards a scheme that ensures generators receive a fixed price for low-carbon generation providing greater certainty to those investing in these new technologies  
• Feed-in Tariff (FiT) – Introduced by the Government to support small-scale renewable electricity generation and applicable to virtually any property owner, not just businesses, the FiT accounts for ~4% of the total cost 
• AAHEDC (Hydro Benefit) – making up the smallest portion, this socialised levy helps subsidise the high costs of distributing electricity in Northern Scotland 

Other charges that go into the total bill are: 

• Metering charges – Including the maintenance of the meter via a Meter Operator (MOP) & essential energy data management via a Data Collector (DC) and Data Aggregator (DA). 
• Climate Change Levy (CCL) – A tax on energy aimed at increasing energy efficiency and reducing carbon emissions 
• Miscellaneous costs – Including the supplier operating costs, broker commission, and VAT

TPC/Non-Commodity breakdown

Why is the cost of energy so high right now? Why does the price of energy fluctuate so much?

There are many factors that influence the price of business energy, most of which are the result of changes in the wholesale energy market. 

Put simply, supply and demand drive the price. There’s more demand for energy in peak afternoon periods than there is in the middle of the night; likewise more energy will be consumed in winter than in the summer.  

Higher demand = higher price and National Grid have the unenviable task of balancing supply and demand every 30 minutes to optimise the UK’s energy usage. 

Other factors impacting the cost of power include, political events, weather, currency movement, and the price of energy sources including gas, oil, and coal. 

Events that have heavily impacted pricing in recent years include the Covid-19 pandemic, which saw an unprecedented reduction in demand due to lockdown and therefore record low pricing including US oil prices turning negative.  

The Russian/Ukraine war had the opposite effect, with Europe’s overreliance on Russian gas supply leading to record highs in the wholesale market that were at least ten times the typical prices in the years before the crisis. 

One of the benefits Brokers have as part of their subscription to our energyengine® contract management platform is the ability to identify when a customer’s renewal offer poses significant savings against current contracted rates using our Beat the Market service. 

How to get the best business energy rates

Energy Brokers often work with energy aggregators (such as OnlineDIRECT) to gain access to lower rates than can be obtained by going direct to the supplier themselves. 

By presenting competitive quotes from across the whole market instead of just a single renewal quote, a broker will work on the customer’s behalf to source the best deal for their individual requirements. 

A broker can also advise on additional cost savings through energy efficiency measures, on-site generation, or energy management systems to further reduce the amount businesses spend on energy. 

Learn more about our energy broker services or get in touch if you’re interested in joining our energy broker community.