October 25, 2020

Third-party costs: What makes up your business’ energy bill?

Written By Rob Milloy, Director of Sales and Service, Opus Energy

Whether you pay for your bills quarterly or on a monthly basis, most of us expect that our bills are a true reflection of the energy our business has used in that period.

What you might not be aware of is that third-party charges – or non-energy or non-commodity charges as they’re also known – can account for anywhere between 40%-70% of your electricity bill, and 20%-50% of your gas charges, depending on your business location and meter type. These charges cover things such as transporting your energy, the Climate Change Levy and even the security of your supply.

As a result of Covid-19, we might even see third-party costs rise this year. Therefore, it’s important for business owners to understand what they are so that they can reduce the impact this might have on their outgoings.

In this article, we break down the 4 main types of third-party costs and provide some suggestions on how to keep costs down across your business.

  1. Infrastructure costs

This is the cost of transporting the energy from where it’s generated to where it’s used. It also covers the costs of maintaining the infrastructure and networks used to transport the energy.

  1. National grid costs

These are made up to balance energy supply and demand in real time. The National Grid calculates each half-hour based on the system needs at that point. These charges not only help to keep the Electricity Transmission System balanced each day, but they also ensure power can be transmitted to where it’s needed.

  1. Low carbon generation costs

These charges are costs from the Government, which fund low carbon and renewable generation for the entire country. They include:

  • Contracts for Difference: The Government sets a fixed price to pay to large renewable energy generators for every MWh generated. To support them, suppliers need to contribute the difference between the fixed price and the market value of that energy.
  • Feed-in Tariff: Cost to support small-scale renewable generators, such as solar roof installations. This scheme guarantees a fixed tariff based on how much the generator generates. Suppliers make payments to Ofgem, the industry regulator, to help fund this. Because of the increasing adoption, costs for suppliers have been increasing year on year.
  • The Climate Change Levy: Climate Change Levy (CCL) is an environmental tax for business energy use which aims to encourage businesses to become more energy efficient. This tax is collected on behalf of HMRC by all energy suppliers and it appears separately on energy bills if it applies to you.
  1. Security of supply costs

Again, these are Government costs, however in this case they are to maintain supply security as the UK builds more intermittent renewable generation. These are known as Capacity Market charges, and they enable non-renewable generators to schedule their generation at times when it’s required, such as when renewable generation is intermittent. An auction run by the National Grid on behalf of the Government determines the cost.

Keeping these costs down

It’s important that you shop around to try and get the best tariff possible for your business, and make sure to find out how third-party costs are accounted for in your contract. This means that when you’re in a contract – which can be fixed from anything from one to five years, depending on your supplier – you’ll benefit from cost-certainty. A good energy supplier should provide a transparent overview of this for you before you sign your contract.

As well as this, it’s crucial to keep an eye on your bills and frequently submit meter readings to your provider. This will then give you a finger-on-the-pulse idea of your business’ energy use. Fortunately, thanks to smart meters, keeping on top of your energy usage has never been so easy. It will also provide you with a benchmark to measure against. This means you’ll more easily notice sudden spikes in your usage and costs. You may even be able to link them directly to something that has changed in your business – new, energy-intensive equipment that’s been installed, for example.

Paying your energy bills may not be the most exciting task but it is a necessary one. And for money-conscious business owners, it really does pay dividends to stay informed about energy saving tactics. Depending on your business type, you should also check whether you’re eligible for exemption from the CCL rates.

From monitoring your consumption to investing in energy-efficient measures in your building, there are plenty of options out there – you just need to find what’s right for you.