Breaking Down Energy Costs: Non-Commodity Charges

When you pay for electricity or gas, you’re not just paying for the energy itself. More than half of a typical UK business’s electricity cost consists of non-commodity charges – essentially, all the other stuff: the cost of delivering the energy, and various government-mandated fees and levies. These charges are often hidden in your unit rate (especially if you have a fixed contract), but they’re there in the background. Let’s break down the main components:

Network Charges (DUoS and TNUoS): These cover the use of the electricity networks. DUoS (Distribution Use of System) charges pay your local Distribution Network Operator for the regional low-voltage network that delivers power to your site. TNUoS (Transmission Network Use of System) charges pay for the high-voltage national grid that transmits power across the country. Every electricity user pays these, one way or another. They usually make up a significant chunk of your bill (often 15-20% or more). DUoS is typically charged per kWh and can vary by region and even time of day (with higher “Red band” rates at peak times). TNUoS for smaller users is usually averaged into your rates, while larger users have specific charges (historically based on peak demand periods called Triads, though that system is changing). For gas, there are similar network charges for the pipelines, but they tend to be a smaller portion of the cost (gas distribution and transmission charges exist but are a bit simpler).

Environmental and Policy Levies: These are costs added to support government energy initiatives, especially renewable energy. The major ones are: the Renewables Obligation (RO) – which funds large-scale renewable projects (suppliers must buy Renewables Obligation Certificates to prove a portion of power is renewable); the Feed-in Tariff (FiT) – which funded small renewable generators (like home solar) with payments; and the Contracts for Difference (CfD) levy – which funds the newer renewable support scheme that guarantees prices to wind/solar farms. There’s also the Capacity Market (CM) charge – which ensures there’s enough reserve power by paying generators to be on standby. These levies are mostly charged per kWh. Combined, these policy costs have grown over the past decade and are a substantial part of bills – often 15-25%. They’re the reason your unit rate isn’t just “wholesale plus a small margin” – suppliers have to add these on top. In fixed contracts, they’re baked into the rate. In pass-through contracts, you might see them itemized.

Balancing and System Charges (BSUoS etc.): The National Grid Electricity System Operator incurs costs to keep the system balanced in real time (like paying generators to increase or decrease output, or managing frequency). These costs are called BSUoS (Balancing Services Use of System) charges. Historically, suppliers passed BSUoS to customers either in rates or separate charges. As of 2023, BSUoS is becoming a fixed charge socialized across users, which simplifies things a bit – you likely won’t see it separately anymore, but it’s still in the cost stack. Additionally, for larger electricity users, there were charges for things like reactive power or exceeding agreed capacities. If you’re a smaller user, you probably won’t see those – but it’s good to know they exist. Essentially, these are grid management costs and ancillary services costs that ensure reliability.

Taxes: CCL (Climate Change Levy): While not exactly a supplier “charge” (it’s a government tax), the CCL is often discussed in the same breath. It’s a flat tax on each unit of energy (for 2025, around 0.79p/kWh on electricity, 0.67p/kWh on gas). Suppliers collect it on bills and pass it to the government. Some businesses are exempt or get discounts (e.g., certain manufacturing under Climate Change Agreements, or very small users, or charities for non-business use). CCL isn’t part of your unit rate, but it contributes to the overall per kWh cost you effectively pay. Remember, VAT (usually 20%) applies on the whole bill including these charges, but VAT is recoverable for VAT-registered businesses.

Implications for You: Non-commodity charges have been rising and can be even more volatile than wholesale prices in some cases. For example, changes in government policy (like adding a new levy) or network investment needs can increase these costs. Even if the wholesale market is stable, your bills can go up due to higher third-party charges. Even if the wholesale market is stable, your bills can go up due to higher third-party charges. It’s one reason businesses have seen increases year-on-year even in periods of flat energy prices. Unfortunately, there’s not much an individual business can do to avoid these – they’re essentially “fees for being on the grid”. However, being aware of them is useful. It explains why, say, using electricity at peak times (late afternoon/early evening) is pricier – because of DUoS Red band and higher strain on the system. Some savvy users shift usage to reduce exposure to peak network charges (if you’re on a tariff that passes that through).

Fixed vs. Pass-Through Contracts: If you have a fully fixed contract, you won’t see these charges directly – the supplier has bundled them into your pence per kWh. You just pay your fixed rate and standing charge. If you have a pass-through contract (more common with larger or flex customers), you might see some of these on your bill as separate lines (or at least the contract will stipulate that they’ll be charged at cost). Neither is “better” universally – fixed gives certainty, pass-through can sometimes save money if, for instance, you reduce usage during peak charge times or if a levy is temporarily over-collected and refunded. For most SMEs, a fixed approach is simpler. But it’s good to know that these components exist. When comparing contracts, ensure you’re comparing like for like – a fixed-rate quote vs another fixed-rate quote (or if one is pass-through, understand that some charges will be additional). See our Pricing Explained guide for more on that topic.

In summary, non-commodity charges are the “behind the scenes” costs that keep the lights on – literally and figuratively – beyond the raw energy itself. They fund the networks and the transition to cleaner energy. They’re largely unavoidable, but by understanding them, you have a clearer picture of where your money goes. As brokers, we keep track of these non-commodity costs when analyzing contracts. If they rise or fall, it affects what counts as a good deal. We’re happy to answer any questions about these charges when we review your energy contracts – sometimes knowing, for example, that you’re in a high DUoS region or have a certain capacity charge can lead to tailored advice (like shifting some usage or adjusting your capacity agreement). Knowledge is power – and in this case, knowledge is also potentially savings.