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Understanding non-commodity costs

Blog
Sam Johnson
03 Apr 2024

When you receive your monthly gas and electricity bills, you may wonder what exactly contributes to the overall cost of the amount you pay.

Essentially, there are two parts that make up your final billing amount:

Price of Energy

(Commodity)

This is accumulated based on the amount of energy you use.

Non-Energy Costs

(Non-Commodity)

These are various other charges and fees that can significantly impact the final billed amount and play a crucial role in shaping your energy bills.

So… What are Non-Commodity costs?

Non-Commodity costs are the additional costs that you incur on your energy bills, apart from the actual cost of electricity or gas you consume (Commodity Element). These costs cover various services, investments, and regulatory charges that are necessary to maintain and improve the energy infrastructure, ensure reliability, and promote sustainability.

Here’s a breakdown of key non-commodity costs

Renewable Obligations (RO):

One of the main support mechanisms for large-scale renewable electricity projects in the UK.

Balancing Services Use of System (BSUoS):

Charge for keeping the UK’s electricity system in balance, including the cost of constraining generation.

Contracts for Difference (CfD):

Support scheme for low carbon generators, providing long-term price certainty to increase investment for certain technologies.

Transmission Network Use of System (TNUoS):

Charge for using and maintaining the transmission network.

Capacity Mechanism (CM):

Charge to ensure we have sufficient power available to meet future needs.

Feed in Tariff (FiT):

Levied on suppliers to fund the FIT scheme, designed to incentivise small new scale renewable generation in business and homes.

Distribution Use of System (DUoS):

Recovers the cost of installing and maintaining the local distribution networks.

Climate Change Levy (CCL):

A tax on energy aimed at increasing energy efficiency and reducing carbon emissions.

Renewable Energy Guarantees of Origin (REGO):

A scheme to provide transparency about the proportion of electricity fed from renewable sources.

Standing and Metering Charges:

Charges for the Data Collector (DC), Data Aggregator (DA) and Meter Operator (MOP)

An example of the breakdown under a typical electricity bill is:

Pie chart detailing the breakdown of an electricity bill

Understanding the breakdown of non-commodity costs on your UK gas and electricity bills is essential for consumers who wish to manage their energy expenses effectively. While these additional charges may seem complex, they are essential for maintaining a reliable and sustainable energy infrastructure.

Please contact our YPO Energy Team to discuss any questions you may have: [email protected]

Sam Johnson YPO

Author

Sam Johnson

Energy Officer

YPO

07552 318856

[email protected]

As Energy Officer, Sam supports the progress and execution of YPO's electricity and gas buying strategies and risk management tools against multiple flexible purchasing baskets. Using a defined strategy, Sam aims to optimise prices and reduce exposure to significant risks within the wholesale market. He achieves this by monitoring daily market conditions against seasonal normal demand within YPO's customer portfolio(s) - scoping opportunities into current and forward contract periods.