Third party costs already make up around half of electricity bills and are continuing to rise, but research suggests that most businesses are unaware of their potential impact.
Also known as ‘non-commodity’ costs, third party costs on energy bills include network charges for energy transmission and distribution, and taxes and levies imposed by government.
For example, the Climate Change Levy (CCL) is a cost added to all non-domestic electricity and gas bills to encourage energy efficiency.
From April 2019, CCL rates on electricity will increase significantly, rising by more than 45 per cent to nearly 1p/kWh. The rate on gas will also increase by two thirds to 0.3p/kWh.
The only way for businesses to mitigate these rises is by taking measures to reduce their energy consumption or joining a Climate Change Agreement (CCA) scheme if they are in an eligible sector.
However, levies and taxes are only a small part of the overall cost of energy. Other non-commodity costs that are also rising include network charges for transmission and distribution, which vary depending on time-of-use.
These costs already make up nearly a quarter of the average business energy bill and are set to increase as network operators upgrade the UK’s ageing energy infrastructure.
Businesses can avoid these rising costs by being more flexible with their energy use, such as moving energy-intensive processes to non-peak hours, using energy generated and stored on-site at peak times, or enrolling in demand-side response (DSR) schemes.
‘Plan and manage carefully’
A recent YouGov survey of 250 senior energy managers, commissioned by npower Business Solutions, revealed that the majority were unaware or unsure about the impact of non-commodity costs on their energy bill.
“There is a worrying knowledge gap among energy managers in the UK when it comes to understanding the impact of non-commodity costs, which will hurt businesses if not planned for and managed carefully”, said Wayne Mitchell, director of markets and innovation at npower Business Solutions.