Your energy bill explained
The unit rate on your electricity bill is divided into two main elements; the wholesale costs of electricity (the commodity) and non-commodity costs. The wholesale element makes up approximately 48% of your electricity unit rate while the remaining 52% consists of a number of different government levies, tariffs and third party charges which make up non-commodity costs.
What are non-commodity costs?
When broken down, non-commodity costs consist of a huge number of different charges. The below chart depicts average non-commodity costs for year 2016/2017 based on an annual wholesale cost of £52,000:
In addition to the above, the value of your energy bill will also include CCL charges. Climate Change Levy is an environmental tax charged on the business use of energy. It’s a fixed figure issued by the Government which increases on an annual basis and is not included in the unit rate as all of the other non-commodities costs are on fully fixed contracts.
How will non-commodity costs impact your business?
Our energy experts have carried out extensive research on the future of non-commodity costs and their workings show that these costs are set to increase over the next five years. The below graph depicts a projected rise in charges that you can expect to see on your business’ electricity bill:
N.B. Please note that these are estimated figures based on our knowledge of the market.
This shows that even if you are able to keep the wholesale part of your electricity costs at a continuous rate over a five-year period, your costs will still increase due to the rise in non-commodity costs.
Why the increase?
As you may be aware, the UK’s electricity infrastructure is strained and the network (National Grid) is being pushed to absolute capacity. This, combined with a global push to reduce emissions and energy consumption in general, means that you will see an increase in taxes and charges relating to environmental issues, and will also pay more for the cost of delivering the electricity to your premises and transmitting power across the network.
What can your business do to combat the issue?
- Understand your bill. It’s vital that you have a clear understanding of what you are being charged for on your electricity bills. Each supplier displays wholesale costs, additional charges and levies differently, therefore you need to be clear which costs are included in your unit rate and be wary of any additional and potentially incorrect charges.
- Fix your contract. It is possible to source an energy provider that can fix all industry costs within their unit rate and standing charges. Fixing your non-commodity charges will mean that you will not be subjected to such severe increases and will be able to protect your business’ bottom line going forward. However, it’s not always possible to fix the non-commodity costs for the duration of the contract and in some instances, you may be offered contracts where the non-commodity costs are included in the fixed price and you may still be at risk of pass-throughs should the non-energy costs increase. You should, therefore, make sure you have a good understanding of your Terms and Conditions and check that there are no thresholds to enable a pass-through cost.
- Consider consumption. The above graph is representative of an ideal case scenario where the wholesale element of your power bill remains constant. However, this may not always be the case as electricity is a volatile commodity where pricing can fluctuate. It’s therefore important to take control of your business’ energy consumption in order to off-set any increase in non-commodity costs and allow for variations in the electricity market.
To talk to one of our energy experts about any of the above, please get in touch on 03330 433 233.