What costs are in my energy bill?
The energy we use is a key part of what we’re paying for, but our bills also include other elements that can affect our monthly costs.
With prices increasing significantly, we want to make sure you understand exactly what you’re paying for.
An energy bill has two main parts:
- The wholesale energy: the cost of the electricity or gas your business uses
- The third party costs: costs that cover running the power grid and getting the energy to your business, and policy costs associated with investment in renewable generation
In addition to this there are supplier operating costs, margins and taxes like VAT and broker commissions, should you use a broker.
What’s changing with energy bills?
The ratio of wholesale energy costs to third party costs varies depending on lots of factors.
Over the last few years, it’s typically been that around 40-50% of a bill was energy costs, and the rest was third party costs.
Current market conditions mean that wholesale energy is now around 80%, however when you fix and the type of contract you’re on will determine your ratio. Keep reading to understand more about the different components.
Wholesale energy costs
The price you pay for electricity or gas will depend on what type of supply contract you have.
You might have chosen to fix the price of energy for the duration of your contract, or you may have an agreement to pay a Flex contract. If you’re not sure, get in touch with us to find out.
At the moment, wholesale energy prices are increasing rapidly because of several global issues.
Read about what’s causing our energy prices to increase.
Third party costs
Your energy bill also contains costs that pay for the upkeep of the power grid and to physically get the energy to you, as well as renewable energy subsidies. Some supply contracts fix the price of these costs, while others pass-through these costs straight to the consumer.
There are four types of third party costs.
Energy infrastructure costs
Also known as distribution and transmission costs, these are the costs to transport energy from where it’s generated to your site.
Energy related costs
Or balancing costs, these are the costs for National Grid to balance the system in real time.
Low carbon generation costs
Renewable subsidies are the costs from Government schemes, which all suppliers must pay, that help to fund low carbon and renewable generation.
Security of supply costs
Cost to maintain security of supply.
BSUoS (Balancing Services Use of System)
What is it?
Paid by generators and suppliers. The charge recovers the cost of balancing and managing.
National Grid calculates the cost every half-hour, based on the system’s needs at that point – and makes sure it can transmit the power to where it’s required.
This cost has significantly increased, and from April 2023, this cost is to be levied solely on suppliers.
Where does it go?
National Grid.
CCL (Climate Change Levy)
What is it?
An environmental tax charged on energy used by businesses. Some businesses are exempt, such as charities and low energy consumers.
Where does it go?
HM Revenue & Customs.
CFD FiT (Contracts for Difference – Feed-in Tariff)
What is it?
This is a levy imposed on suppliers to support the Contracts for Difference scheme. This subsidy supports large scale renewable generation such as large wind farms.
Where does it go?
Consumers given the wholesale market price is higher than strike prices, if not then generators accredited by EMRS.
CM (Capacity Market)
What is it?
Capacity Market scheme keeps the lights on by ensuring there is sufficient reliable capacity available when the system needs it.
An auction, run by EMRS on behalf of the Government, determines the price.
Where does it go?
Generators accredited by EMRS.
DSUoS (Distribution Use of System)
What is it?
This covers the cost of using and maintaining the 8 distribution networks (the local network of cabling which transmits power from its point of arrival from the Transmission Network to your meter).
Where does it go?
The Distribution Network Operator (DNO) in the area of the country in which your meter is located.
Distribution and Transmission Losses
What is it?
Network losses are calculated to account for the electricity which is “lost” (predominantly dissipated in the form of heat) during transit on both the transmission and distribution network.
Where does it go?
National Grid/DNO’s.
FiT (Feed-in Tariff)
What is it?
This is a levy imposed on suppliers to support the Feed-in Tariff scheme. This subsidises small renewable generators such as solar panels on domestic roofs (It’s now closed to new applications but continues to support existing generators).
Where does it go?
Generators accredited by Ofgem.
RO (Renewables Obligation)
What is it?
This is a levy imposed on suppliers to support the Renewables Obligation scheme. This subsidy supports large scale renewable generation such as large wind farms. It is closed to new applications but continues to support existing generators.
Where does it go?
Generators accredited by Ofgem.
TNUoS (Transmission Network Use of System)
What is it?
This covers the cost of using and maintaining the transmission network (the high voltage national system which transmits electricity from power stations to your local Distribution Network).
Where does it go?
National Grid.
I’m concerned about my energy bills
With many businesses still recovering from the financial impact of Covid-19, this is likely to be a difficult time. Our teams want to help.
Contact us
If you’re at all worried about managing your energy payments, please contact us. We’ll work with you to come up with a management plan. The sooner you contact us, the better we’ll be able to help.
See if you’re eligible for Government support
The Energy Bill Relief Scheme (EBRS) will provide support for eligible customers up until 31st March 2023. Learn more about eligibility for this scheme.
From 1st April the EBRS will be replaced by the Energy Bills Discount Scheme, and will run until 31st March 2024.
The Government designed this scheme to strike a balance between supporting businesses and limiting taxpayer’s exposure, with a cap set at £5.5 billion based on estimated volumes. Since energy intensive users are more vulnerable to higher prices, Energy and Trade Intensive Industries (ETIIs) will receive higher discounts.
Eligibility remains the same as EBRS. If you’re an eligible customer, you don’t need to do anything as the discount will automatically be applied to your bill. ETIIs will have to apply for the higher level of support. Learn more about the Energy Bills Discount Scheme.
Get business debt advice
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