What costs are in my energy bill?

An energy bill has two main parts:

1. The wholesale energy: the cost of the electricity or gas your business uses
2. 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:

• Tax costs - such as VAT and Climate Change Levy (CCL).
• Operating charges of supply - includes for example operating costs and metering costs.
• If you use a broker - Third party service fees for energy broker services.

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.

To better understand the terms used in your bill we have added Ofgem's recently developed Non-Domestic Glossary of Terms as a further source of information.

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.

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

The costs paid to the Government to maintain supply security as the UK builds more intermittent renewable generation.

BSUoS (Balancing Services Use of System)

What is it?

Paid by generators and suppliers. The charge recovers the cost of managing the electricity balancing system.

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.

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?

It goes to consumers if the wholesale market price is higher than the strike price (the price at which generators have agreed to sell their output), and generators accredited by EMRS if not.

CM (Capacity Market)

What is it?

The 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.

DUoS (Distribution Use of System)

What is it?

This covers the cost of using and maintaining the distribution networks (the local network of cabling which transmits power from its point of arrival from the Transmission Network to your meter).

DUoS charges are recovered via a number of different measures, including consumption based charges, standing (or fixed) charges, capacity charges and reactive power charges.

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/DNOs.

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).

Since April 2023, TNUoS charges have been recovered primarily (and in some areas of the country, exclusively) via the standing (or fixed) charge.

Where does it go?

National Grid.

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.

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