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

The cost of electricity has been fluctuating considerably in the last few years. From the highpoint in September 2018 wholesale prices had fallen by roughly 60% by 2020. During the lockdown they started to rise again. Despite the temporary drop energy bills have consistently gone up. The reason for this is a rise in non-commodity, or ‘third-party’, 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 about 36% of energy prices. In 2021 this has risen to 64% and is predicted to reach 70% to 80% over the next decade.

Here is our guide to the different types of non-commodity costs.

Transmission and distribution costs

Each supplier incurs expenses to run and maintain the power network. These vary from provider to provider and depend largely on the type of power plant. For example, solar and wind generators are less consistent than 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.

Covid-19 and the energy market

Some non-commodity costs are set at the beginning of each year. Others are subject to change throughout the year. In simple terms, the non-commodity charge is equal to the cost of providing energy to the nation divided by how much we use. The more we need to use, the lower the cost of non-commodity and the higher the wholesale price.

During lockdown, our use of electricity dropped significantly across the UK. Following weeks of high winds in January 2020, the network had a surplus of power and a far lower demand. This resulted in costs of nearly £50m to balance the network and sell off spare energy at a loss on the European market. This is one of the rare occasions where it would have been cheaper long term to leave our lights on.

The lockdown also affected the FiT and CfD levy costs. These are reviewed quarterly and significant changes in generation or demand of renewable energy have a knock-on effect on how much we pay in taxes to support the industry. It’s not all bad news though, lower emissions mean we will end up paying less towards the climate change tax.

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. In our experience, nearly 20% of all utility bills include a mistake.

With such turbulence in the market, there is less control over the wholesale cost of electricity. What can be controlled 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. Our clients have saved on average £180,000 on TNUoS charges.

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.

5 ways to proactively manage your non-commodity costs

Taking proactive control of your consumption is as crucial as buying at the right time. There are a variety of options to help manage and mitigate the impact of these charges to your business. Here we explore our top 5 tips to better manage your non-commodity charges.

  1. Choose your energy contract wisely
    It’s important to think carefully about your non-commodity costs when securing your energy supply contract. There are many options available ranging from fully fixed to pass-through. It is important to make sure you’re comparing apples with apples when assessing contract offers and that you ensure you know which option best suits your business before committing to a contract. It’s vital to consider your wider energy strategy, a fully fixed contract could limit the potential gains from being more proactive.
  2. Better understand your energy data
    Unlock the true potential of your energy usage. Gathering data is one thing, translating and interpreting it is another. An Intelligent Bureau uses clever analytics, algorithms, and artificial intelligence programming to unearth serious business insights that turn your site into an intelligent building, delivering powerful savings, and uncovering new and previously unexplored opportunities for additional revenue. Practical solutions could include a kVa capacity review or reactive power analysis to undercover the need for power factor correction equipment.
  3.  Install the right technology to future proof your business
    Transform your data into real-time insights; saving carbon, energy, and other operational costs. Intelligent Building Controls can potentially deliver 20% savings on your operating costs with an ROI under 12 months. Plus additional infrastructure such as wind, solar, battery storage and LED lighting can also help to reduce your usage, cut costs and support net zero carbon targets.
  4.  Start to load shift and load shed
    Reduce inefficiencies in performance by managing out of hours’ consumption and shifting or shedding consumption when prices are greatest at certain times each day. Around 10,000 UK firms could make around £20,000 a year in cost savings or revenue by moving or curtailing power use at peak times, according to 2017 analysis by SmartestEnergy.
  5.  Take advantage of Demand Side Response (DSR) opportunities
    You can get paid if you’re able to reduce consumption from the electricity grid at busy times when the national demand for energy is at its peak or to help National Grid manage system frequency. There are plenty of schemes on offer so you’ll need to decide which is the right fit for your organisation and how best you can react when you need to manage your demand levels. It’s easier if you have Intelligent Building Controls and back-up generation or storage to support your strategy.