All energy bills comprise of both commodity and non-commodity costs. Commodity costs are simply the cost of electricity and gas. Non-commodity costs include the transmission and distribution costs, as well as charges driven by government schemes and levies.
The Renewables Obligation (RO) charge funds the UK Government’s scheme that supports and encourages the development of renewable projects in the UK. Ultimately, RO incentivises investment in renewable electricity generation projects for established energy generators and investors.
Transmission Network Use of System (TNUoS) charge is for the use of the electricity transmission network, also referred to as the National Grid. Both generators and business end users pay this charge.
It pays for the cost of maintaining the electricity transmission network in England, Wales, Scotland and offshore. This includes the cables, pylons, transformers and other electricity infrastructure that transport electricity at a high voltage between the electricity generators and local distribution networks.
Elexon are responsible for managing the Balancing and Settlement Code (BSC) – a contract between all companies that operate within Great Britain’s wholesale electricity market. It ensures that payments for imbalances in supply and demand are settled accurately.
To do this, Elexon compares how much electricity generators predicted they would produce, and suppliers said they would consume, with the actual generated and usage volumes. Elexon then ensures that all parties are paid or billed accurately for any differences.
When Elexon settles supply and demand differences with electricity generators and suppliers, in accordance with the BSC, the amount paid out by Elexon generally does not equal the amount paid to Elexon. The imbalance can be positive or negative.
To ensure that Elexon makes no financial gain from such an imbalance, the Residual Cashflow Reallocation Cashflow (RCRC) provides a credit or debit to all suppliers and generators to ensure that the total imbalance charge is zero across all parties.
The Balancing Service Use of System (BSUoS) charge allows National Grid to recover the cost of balancing the electricity transmission system, which ensures that energy input to the grid is sufficient to meet demand.
The BSUoS tariff is charged on a half-hourly basis and is based on the volume of energy put onto or taken off the transmission system at that time. It is fixed for 6-month periods at a time, as a £/MWh amount.
The Renewable Energy Guarantees of Origin (REGO) scheme, administrated by Ofgem, provides transparency to consumers about the proportion of electricity that suppliers source from renewable generation.
How does the scheme work?
The primary use of REGOs in Great Britain and Northern Ireland is for Fuel Mix Disclosure (FMD). FMD requires licensed electricity suppliers to disclose to potential and existing customers the mix of fuels (coal, gas, nuclear, renewable and other) used to generate the electricity supplied.
The Assistance for Areas with High Electricity Distribution Costs (AAEHDC) scheme is designed to reduce the cost of electricity distribution in sparsely populated areas in the UK. Currently, the only specified area is The North of Scotland.
National Grid ESO recovers an ‘Assistance Amount’ and ‘Shetland Assistance Amount’ through the scheme and passes it on to the relevant distributor (Scottish Hydro Electric Power Distribution Ltd.), enabling distribution charges to be lowered for consumers. Additionally, National Grid retains an ‘Administration Allowance’ to cover the costs of administering the scheme.
The Climate Change Levy (CCL) is a tax imposed by government on energy supplied to non-domestic users in the UK. It acts as an incentive for businesses to improve their energy efficiency and reduce carbon emissions. The CCL tax rate is amended annually on 1st April. Click here to view the current CCL rates.
The Feed-In-Tariff (FiT) charge funds the Government’s scheme that encourages the uptake of a range of small-scale renewable and low carbon electricity generation projects (such as wind and solar power) by paying participants an above-retail electricity price per KWh for the energy they produce and feed into the grid.
The scheme was introduced in 2010 and closed to new applicants in 2019, but continues to reward participants that applied during that time frame.
The Distribution Use of System (DUoS) charge covers the cost to operators of transporting electricity from the transmission system to customers. This includes the cost of maintaining the local electricity distribution network’s infrastructure including the cables, substations, poles and transformers.
There are six Distribution Network Operators (DNOs) that operate within the eight regions of the UK. The DUoS charge varies by region as each DNO sets their own charge within the price restrictions placed on them by Ofgem. The charge is based on the amount of electricity consumed by your business and varies at different times of the day to discourage usage at times of peak demand.
The Contracts for Difference (CfD) charge funds the UK Government’s initiative that incentivises new investment in low-carbon electricity generation by offering investors a guaranteed price for the electricity they generate.
As the wholesale price of electricity fluctuates, the generator is either paid a subsidy to ensure they receive the set price, or they pay any surplus above the set price back to the scheme. The benefit is passed on to consumers through their bills.
The Capacity Market (CM) charge funds the UK Government’s mechanism that ensures security of electricity supply by providing payment to generators, to ensure they deliver energy when needed, and large users, upon their agreement to reduce electricity consumption at times when demand is high.
The objective is to avoid potential blackouts and prepare the UK for when our reliance on intermittent and inflexible low carbon electricity generation increases, thus encouraging investment in such technologies.
Local Distribution Zone (LDZ) system capacity charge covers the transportation and distribution of gas within a local area, typically by a regional gas distribution network. The charge is based on the capacity required to deliver gas to consumers in that zone. It is part of the cost structure that gas suppliers pay to the network operators for using their infrastructure to deliver gas from the national grid to end users, such as households and businesses.
The Local Distribution Zone (LDZ) customer charge typically covers the operational costs of maintaining and managing the local distribution network, infrastructure and administrative costs. Unlike capacity charges, which are based on the amount of gas, or the capacity needed, the customer charge is usually a flat fee, often dependent on the size or type of consumer:
The Local Distribution Zone (LDZ) Exit Capacity NTS charges refer to fees applied for the capacity of gas that exits the National Transmission System and enters a Local Distribution Zone. These charges are imposed on gas shippers or suppliers to cover the costs of transporting gas from the national gas grid (NTS) into the regional LDZs for delivery to end consumers.
The Distribution Network (DN) Entry Commodity charge is a fee levied on gas shippers or suppliers for the volume of gas that enters the Distribution Network from upstream sources, typically through the National Transmission System. This charge is based on the amount of gas entering the distribution network, rather than capacity.
The Unidentified Gas (UIG) charge recovers revenue that is lost through gas being stolen, lost or consumed by unregistered meter points.