Controlling your energy bills: A guide to non-commodity costs

The cost of electricity has fluctuated considerably in the last few years, for many reasons. During the multiple national lockdowns, prices started to rise considerably and have since reached all-time highs. And due to unforeseen events around the world following Covid-19, the markets have remained incredibly volatile. One of the reasons for this is a rise in non-commodity, or ‘third-party’, costs.

The term ‘non-commodity’ costs has worked itself into many conversations throughout the past few years, within the energy industry. But understanding what non-commodity costs are, and how they could impact you and your business can be difficult to understand.

So, we have broken it down for you. Here is our guide to the different types of non-commodity costs.

What are non-commodity costs?

Essentially, the amount we pay for energy includes three different expenses. The first, is the wholesale price of the actual amount of power we use (the commodity). Secondly, we have the cost of transmission and distribution across the network. And finally, a variety of government levy and taxes. The energy companies pay these fees, and pass the cost onto their customers.

In 2011, non-commodity costs accounted for around 36% of energy prices. In 2022 this has already risen to around 70% and is predicted to reach 80% over the next decade and continue to ascend.

Transmission and distribution costs

Each supplier incurs expenses to run and maintain the power network. These vary from provider to provider, and largely depend on the type of power plant. For example, solar and wind generators are less consistent in output, as compared with gas or nuclear power. With a move towards renewable energy, the cost of balancing the system is likely to increase. The main expenses are:

Government levy and taxes

These taxes fund various government initiatives and green energy programs.

Controlling your expenses

With the increases in non-commodity costs set to continue, it is important to keep an eye on your bills. Proper monitoring, and tracking monthly changes, will ensure you aren’t overpaying.

With such turbulence in the market, there is less control over the wholesale cost of electricity. What can be controlled, however, is how we use energy. At EIC, we can help you plan your usage around annual Triad periods. This can make a significant difference to your energy bills. Our daily traffic light warnings will help you avoid any unnecessary fluctuations, and keep costs low.

Whether you prefer the stability of a fixed price, or the control of a flexible contract, we can help. Setting up an energy contract can be a long process, especially if you want a good price. We have the experience to negotiate with your provider, to make sure you are not paying more than you should be.

Our service is tailored to your needs. To find out what we can do for your business, get in touch today.

The importance of access to energy data

The energy grid is evolving, and systems will have to adapt as we move towards a more flexible energy landscape. Data-driven energy optimisation could be the key to business profitability, as well as deep carbon reductions.

Climate change and net zero targets are at the forefront of the minds of consumers and investors. What this effectively means, is that energy performance is now an operational and commercial priority in building intelligence. Data analytics are crucial for businesses wishing to advance this intelligence.

Let’s take a look at the benefits you can reap from taking control of your data.

Become more efficient

Accessing and understanding data across multiple sites can bring a whole host of benefits. One of the most beneficial advantages is the opportunity to run your business more efficiently.

Efficient energy management can happen anywhere at any time. Energy data and analytics need to be readily available for businesses to obtain the full advantages. Through targeting the data of your sites, you can see where you are using the most energy, when, and for what reason. This makes it easier to identify and remedy areas of waste – making your business more sustainable and future-proofed as a result.

Cut costs

Having quick and easy access to your data is essential for every company. One by-product of becoming more efficient, is the reduction of unnecessary costs. Reducing energy waste in your business automatically reduces any costs attributed to that waste. This frees up money, which can be reinvested in other areas of the business.

Effective data management will help to inform your business decisions, keep your energy costs low and help you to future-proof your sites. Understanding data – not only from your online systems, but also from your bills, for example – can help your business to avoid charges for consumption in peak demand periods, as well as identifying waste usage. Thousands of pounds can be saved through analysing data, as it can identify spikes in wasted energy usage.

Increased transparency

As we move towards a new era of sustainability in business, it is essential for organisations to be as transparent as possible with their clients and potential investors. Transparency about your sustainability efforts can help your business to connect to customers on a deeper level. Offering accountability has been proven to encourage people to opt for certain businesses over their more reserved competitors.

Research has found that 94% of consumers are more likely to be loyal to a brand that is completely transparent. With a consumer market that is focused on sustainability now more than ever, transparency in terms of sustainable goals is key.

Where does EIC come in?

Reducing your energy consumption is a simple and effective solution to reducing costs – if you know how. Finding simple ways around constantly rising prices can often be confusing and time-consuming. But it doesn’t have to be.

At EIC, our goal is to help companies navigate the best routes for themselves and their business plan. We recognise that while there is a broad range of reasons as to why energy prices are rising, we can help our clients return their business strategies to normal.

Get in touch today to find out more. Also, head over to our piece on the changes to the TCR mandates to find out more on how this will affect you.

TCFD: how to align your business with mandatory disclosures

In April 2022, the UK government implemented mandatory Task Force on Climate-related Financial Disclosures (TCFD) requirements. These recommendations apply to the UK’s largest companies and financial businesses.

Companies must work with the resources available to them, and get their strategies in place now. Not only will this ensure that they are in a strong position for imminent changes, it will also help businesses to navigate changes within the broader ESG landscape.

Let’s take a look at how you can organise your company to align with the new requirements.

What is the TCFD?

The Task Force on Climate-related Disclosures was established in 2015, by the international Financial Stability Board. It is based upon the growing consensus that climate change has immediate effects on economic decisions. Investors are growing more aware of climate-related risks and turning towards those organisations that are planning ahead in this regard.

As part of a package of environmental measures from the government, Chancellor Rishi Sunak announced plans to make the TCFD guidelines mandatory for businesses. This fraction of the green recovery plan aims to bolster the UK’s position as a global leader for green finance.

To that end, the TCFD is a reporting framework with the aim of achieving consistency in terms of the level and quality of climate-related disclosures. Setting a consistent standard will increase transparency and allow for comparability between organisations, in terms of their impact and effects on climate change.

The TCFD reporting framework spans four key areas: governance, strategy, risk management, and metrics and targets. In terms of governance, companies must describe how the board maintains oversight of climate-related risks and opportunities. With regards to strategy, they must identify climate-related risks and opportunities in the short, medium and long-term and how this will impact the organisation’s businesses, strategy and financial planning.

In terms of risk management, companies must demonstrate their processes for identifying and assessing climate-related risks, and how these risks are managed and integrated into their overall risk management. Businesses should also disclose the metrics they have used to assess climate-related risks and opportunities. They should disclose Scope 1, Scope 2 and Scope 3 greenhouse gas emissions and climate-related performance targets.

Know where to start

The mandatory TCFD requirements now apply to large businesses, for accounting periods beginning on or after 6 April 2022.

Starting early is key in implementing TCFDs efficiently and effectively. While points may be altered in the strategy as time goes on, having a roadmap to achieve your TCFD goals within a future business plan is essential in understanding the potential gains, as well as risks. Board members may require training, and communication with stakeholders throughout the process will be key.

Reporting on risk management is also very important when starting out with TCFDs. The starting point is to consider the existing processes within your organisation and build upon these. As well as understanding the tools you already use to help collect and report climate-related information, and consider which additional tools are required.

All information required to meet the disclosure obligations must be included in the company Annual Report and Accounts. Third party information used to assess climate-related risks – such as from data providers – may be included.

Set targets

Identifying targets is a good start when figuring out a strategy. Measuring and reporting on progress, peaks and troughs, can help businesses to understand exactly where they can improve, and how. There are several initiatives that can assist businesses in this regard.

Science Based Targets , as well as industry projects promoting net zero targets for specific sectors, can help businesses to understand exactly how to create ambitious but reachable targets for the future. Emissions must be cut significantly for the UK to reach net zero, by 2050. A ‘science-based’ emissions target stays in line with the scale of reductions required to meet these objectives. These goalposts track progress and give the private sector a clear idea of how quickly they need to reduce their GHG emissions, to prevent the worst impacts of climate change.

You should also consider carrying out a materiality assessment, which will help you to decide which climate-related issues within your organisation are significant enough to report on, and in turn, set targets for. Climate-related targets should be quantifiable and granular, linked to metrics, clearly specified over time and periodically reviewed. They should be understandable and contextualised.

The TCFD recommends using metrics that are ‘decision useful’, clear and understandable, reliable, verifiable and objective, and consistent over time. Categories of metrics include GHG emissions, transition risks (such as credit exposure to carbon-related assets or revenue from coal mining) and physical risks (such as investment in flood zones).

Follow available guidance

Understanding the ins and outs of the TCFD requirements may seem confusing, but there are many forms of guidance that are available to you. The TCFD Hub, BEIS and the FRC have published guidance to help companies with approaches, examples of disclosure and how the mandate interacts with existing requirements. Including SECR and ESOS.

The Department for Business, Energy and Industrial Strategy (BEIS) has recently published guidance for businesses that now need to make TCFD-aligned disclosures. You can access the guidance here.

How can EIC help?

Implementing TCFDs comes with a number of benefits for larger businesses. A major one being that they will help companies to identify and assess the risks posed by climate change. They can then address their structural weaknesses, and implement mitigation and adaptation efforts to future-proof their business. Organisations that do this will have a competitive advantage over those that don’t when it comes to future funding and investments.

At EIC we are experienced in helping clients mitigate climate-related risks. Through our unrivalled energy management services, and cutting-edge technology, we can help you with TCFD compliance. Our aim is to guide you and interpret the legislation, keeping you informed and compliant. From resource efficiency and clean energy, through to your carbon compliance, our goal is to simplify your sustainability journey.

Get in touch today to find out more information on future-proofing your organisation.

What is the Targeted Charging Review (TCR) and how will it affect you?

Business owners up and down the country may have heard of Ofgem’s Targeted Charging Review (TCR). The new rules came into effect from April 2022, establishing a new system for non-commodity charges. This is effectively how network owners charge energy customers, for the use of electricity networks in the UK.

These changes will impact every business differently. So, it is essential that every business understands the effects the new rules will have on their bills, before they enter into their next electricity contract.

Here are some important points you should know about TCR and how it will affect you.

What is the TCR?

The TCR is an Ofgem-led project that assesses how network charges are set and recovered. It was launched to address concerns that the current mechanisms used to recover Distribution Use of System (DUoS) and Transmission Network Use of System (TNUoS) charges could lead to inefficient use. It is hoped that the TCR changes will help consumers avoid detrimental effects, and distribute the costs more fairly – particularly for those that consume energy during peak periods.

For customers that are metered half hourly, electricity transmission costs run according to Triads. Triads are the three half-hour settlement periods in the winter with highest system demand. National Grid determines these peaks to set electricity charges, and they are calculated retrospectively in March of each year.

Now Ofgem has introduced new rules, following concerns that the current system distorts the market and is detrimental to businesses of all sizes. It also comes amid concerns that more savvy businesses may try to avoid Triad periods, and not pay their share towards maintaining the grid year-round.

How will this affect you?

Triad periods usually provide larger businesses with an opportunity to make savings through flexibility, by reducing consumption during peak periods. Even those who aren’t able to be flexible in their usage can mitigate the impact of Triads by increasing their energy efficiency. However, under the new system there is less incentive for Triad avoidance and, where it remains, the benefits will be significantly reduced.

TCR changes introduced in April 2022 now mean that non-commodity charges will no longer be based upon peak-time consumption and will instead be based on a standard flat rate. All meters will be sorted into bandings and charges applied to each banding. These bandings will be reviewed every five years.

For some, the TCR will increase their energy costs, as they may fall within a higher banding, but this can be rebalanced within other areas of their budget. But those larger energy users who have not previously consumed energy flexibly and who have been hit with high Triad costs could see significant improvements, and reductions in non-commodity costs.

Where does EIC come in?

Keeping track of your energy usage is important at the best of times, but even more so under current circumstances. With these latest changes to electricity charges, keeping track of your energy costs can seem all the more confusing.

Reducing your energy consumption is a simple and effective solution to reducing costs – if you know how. Finding simple ways around constantly rising prices can often be confusing and time-consuming. But it doesn’t have to be.

At EIC, our goal is to help companies navigate the best routes for themselves and their business plan. We recognise that while there is a broad range of reasons as to why energy prices are rising, we can help our clients return their business strategies to normal.

Get in touch today to find out more. Also, keep your eyes peeled for our upcoming blog about how access to data could help your journey towards energy efficiency.