Business bills for both electricity and gas are made up of two main parts -

Non - Energy Costs

Non-energy costs pay for running the

UK’s gas and electricity networks and

comprise a variety of obligations,

levies and taxes set by the

government.

These costs are effectively those

elements of a bill which are outside

of the supplier’s control. This is the

reason why they are referred to as

“Third Party Charges”.

Energy Cost Unit Rate

including the wholesale commodity rate, the supplier’s operational costs, and profit margin.

During 2008–09 to 2012–13 there has been a 50%

increase in Third Party Charges, with a further rise

on the way for 2013–14.

1st April is an important date in the energy year as

it is when many of these charges change.

Energy Cost Unit Rate

When compared to this year, figures for 2013–14

suggest medium-sized businesses could see

further rises of over 10% in their electricity bills

and 2% in their gas bills purely as a result of

higher Third Party Charges.

The transmission networks act like the

motorway system and enable the bulk transfer

of high-voltage electricity (direct from power

stations) and high-pressure gas around the

country.

Electricity Transmission Charges (TUoS)

account for around 8% of non-domestic

electricity bills. This element has seen double-

figure percentage rises as a result of a new

price control.

By contrast, gas transmission charges are set to

fall.

Electricity and gas distribution networks are

regional grids that branch from the national

grid. They are essentially the A-roads

delivering power and gas to industrial,

commercial and domestic users.

Electricity Distribution Charges (DUoS)

makes up around 16% of total electricity

bills. These regional charges have increased

8%–15%. The DUoS charge covers the cost

of receiving electricity from the national

transmission system and feeding it directly

into homes and businesses through regional

grids.

Gas transportation charges are rising due to

higher costs for regional distribution (11%

averaged across Britain, but with regional

variations). Gas distribution costs are

offsetting reductions in national gas

transmission charges.

We have published 3 separate guides which provide further

explanations about these individual Third Party Charges.

Renewables Obligation – requires UK electricity suppliers to

supply an increasing proportion of electricity from renewable

sources. Risen by approximately 33% this year & will add 1.5% to

elecricity bills.

Feed-in Tariff – the scheme launched in 2010 and offers

guaranteed cash payments to households and businesses who

produce their own electricity using ‘microgeneration’. The cost

is increasing by at least 15%.

Climate Change Levy (CCL) – a Government tax, introduced in

2001, on the use of electricity & gas by businesses, agriculture &

the public sector. The aim of the levy is to encourage businesses

to improve energy efficiency and reduce carbon emissions.

The cost increases each year in line with the Retail Price Index

(RPI) & equates to approximately 6% of bills over the year.

Business customers are charged indirectly through

their suppliers for their usage of the energy

networks and taxes.

“All Inclusive” fixed-price offers, where the cost to

the customer will be the same throughout the

contract, include a premium to cover the supplier in

the event of an unexpected rise in third party costs.

The alternative of “Pass Through” contracts see

third party charges billed to the customer at the rate

faced by the supplier.

Typically, the amount of Third Party Charges a

business energy supplier builds into a quote is not

fixed, but based on forecasted rates. Each quote will

represent these charges in a different way and the

amount varies depending on supplier.

Make sure you understand the implications of a rise

in third party charges and its effect on your business

energy bills.

All businesses can save money on the majority

of these charges by cutting energy use. The best

way to work out how to do this is to monitor your

energy use. From here you can target the quick

wins and work out where best to improve the

energy efficiency of your operations. Encouraging

other members of staff to get involved can also

help implement sustained behavioural change in

your organisation.

Businesses on half-hourly meters should also

monitor their demand during “triad” charging

periods (transmission) and red, amber, green

times for distribution as a way of cutting costs. If

you are able to shift your energy use away from

early evenings on weekdays you could make

significant savings on your bills.

To minimise the scope for unexpectedly large bills

customers should carefully read all documents

sent by your energy supplier. When looking at

your bill try and understand which third party

charges are “all-inclusive” in your contracts and

which are “pass through”. It is likely that some of

your third party charges will be pass through even

if you think you have an “all-inclusive” electricity

contract.

As well as Third Party Costs increasing, they have

also become more unpredictable. Charges for

distribution and transmission are especially

sensitive to wider market changes. These cost

elements can change significantly owing to

changes in demand in localised areas. Even if your

usage stays the same, if another business alters

their consumption, your charges could be

affected.

This has made it more complicated for suppliers

to forecast what future Third Party Costs will be

when they prepare their offers. This is especially

the case when contract periods run over 1 April

and into a new third party charging year.

About Indigo Swan

We believe everyone is entitled to the truth abouttheir energy and shouldn’t be penalised becausethey don’t have the knowhow.

The information in these guides has beenprepared in conjuction with Cornwall Energy whoprovide strategic energy market intelligence.

If you have any questions please get in touch.

hello@indigoswan.co.uk0333 320 0475

Indigo Swan Limited2 Millennium PlainNorwichNR2 1TF