Non Commodity Costs Explained

What are Non Commodity Costs?

Non commodity costs are additional charges on a business electricity bill. These charges cover the distribution of electricity, maintenance of the grid, and other network costs. Non-commodity costs are usually included in your standing charge (if not stated elsewhere on your electricity bill). Non-commodity costs can be up to 16% of your total electricity bill, therefore, it is important that you fully understand them

How do Suppliers Purchase Electricity?

There are multiple ways suppliers can purchase electricity, the main ways suppliers do this are:

• From wholesale markets,
• Direct power purchase agreements,
• Spot market purchases.

Suppliers frequently purchase electricity through all the above methods, which allows suppliers to hedge the energy market and secure competitive energy prices. 

Energy suppliers are charged by the National Transmission Network, Distribution Network Operators (DNOs), and independent DNOs responsible for delivering the electricity to consumer premises. 

What are Transmission Networks?

Transmission networks provide an even distribution of energy around the UK. Transmission networks are high-voltage power lines and infrastructure that move electricity from power plants to DNOs. You may recognise electricity pylons scattered around. These are transmission networks. You can also get underground lines. These Pylons and underground lines are managed by the national grid all around the UK and make sure that energy is distributed over long distances to meet the country's energy demand.

What are DUoS Charges?

DUoS (Distribution Use of System) is an energy charge implemented as a result of TCR (Targeted Charging Review). 

DUoS cover the cost of maintaining and upgrading the grid. They also cover general costs of operating the infrastructure required to distribute electricity from the transmission network to consumers. 

How are DUoS Charges Calculated?

DUoS charges are calculated based on the following:

• Availability Charge: Also known as Agreed Supply Capacity (ASC). This charge covers the kVA capacity available for your electricity meter. This is billed as £/kVA
• Excess Availability Charge: This charge applies only if you surpass your agreed supply capacity (ASC). To avoid these charges, you should check that your kVA is correct. 
• Reactive Power Charge: This is for non-working power used by equipment such as transformers and motors. It is only charged if it exceeds your DNO's limits. To mitigate these costs, we recommend that you install power factor-correcting equipment.
• Standing Charge: This is a fixed daily charge set by your supplier to cover the costs of distributing energy and maintaining the grid.
• Unit Rates: This is the price of your electricity consumption, charged in P/kWh by your supplier. 

What are TNUoS Charges?

TNUoS (Transmission Network Use of System) are charges incurred on your energy bill by the transmission network to cover the costs of maintaining and operating the high-voltage transmission network which transports electricity from power stations to local distribution networks. Generators also must pay these charges, not just consumers.

How are TNUoS calculated?

In March every year, the National Grid identifies three half-hour periods with the highest energy demand from November to February. The National Grid will then create an average of your energy consumption during these peak periods, which is known as the Triad. This figure is then doubled to reflect a full hour's usage and multiplied by your regional TNUoS rate to calculate the final annual charge. If you use your energy strategically during the assessment periods, then you can lower your TNUoS charges.

TNUoS costs have recently increased due to an increase in transmission network costs. This cost increase was caused by the need to upgrade old infrastructure and create more renewable energy sources. 

Extra Charges for High Voltage Assets

High-voltage assets are equipment and infrastructure required in the transmission of electricity at high voltages. This includes but is not limited to, transformers, high-voltage power lines, and substations.

Businesses connected to high-voltage networks may be charged the 'extra-high-voltage distribution charging methodology' (EDCM). EDCM is used to calculate DUoS charges for large energy consumers connected to the distribution network at higher voltages. 

How can businesses reduce their non-commodity costs?

Tracking your energy usage is an excellent start for managing your energy costs. You should monitor how much energy is being wasted and energy which is being used during peak times that could be used during non-peak times instead (such as charging devices). Purely Energy have invested in a software to identify where energy is getting lost and how you can reduce your energy consumption, which will then lower your non-commodity costs. If you would like more details, please contact us, and we would be happy to assist you. 

Reducing DUoS Charges 

• Energy Audits: Conducting regular energy audits can help identify inefficiencies and point out opportunities for savings. 
• Shift Operations: Move high consumption activities to off-peak periods, such as charging necessary equipment.
• Energy Efficiency: Implement energy-saving strategies and ensure that staff are up to date with the new energy efficiency protocols. This will reduce overall consumption.
• Load management: Using an energy management system to monitor your energy consumption patterns.
• Flexible Contracts: If your energy consumption changes, you may get caught up by volume tolerance charges. To avoid volume tolerance charges, negotiate a flexible contract with your supplier, which has no volume tolerance. If you are not already in a flexible contract, let your supplier know as soon as possible about the potential energy consumption changes to see if they can do anything about it. If you are still struggling with deciding if your energy consumption will change or how to secure a contract with no volume tolerance, then contact us, and we will be happy to sort it out for you.
• Renewable energy sources: Some renewable energy sources, such as solar panels, can reduce your dependence on the national grid at peak times.
• Capacity Planning and Reviews: By reviewing your current agreed kVA and comparing it with how much kVA you need, you could potentially get a kVA reduction, which will lower your banding, leading to lower charges. If you think your business will benefit from a free kVA analysis, then contact us, and we will be happy to carry one out for you.

Reducing TNUoS Charges

To minimise the TNUoS Charges, you can do the following:

• Demand Response: Reduce energy demand during peak times.
• Location Optimisation: Consider the location of your business sites and how energy can be more expensive in one area than another. (E.G., Northern Scotland is around 2 pence more expensive than Southern Scotland) 
• Monitor Future Trends in the Energy Market: The energy market is constantly evolving, making it difficult to predict exactly what will happen in the future. However, we can predict what is likely to happen, which gives us at least some insights into the future. An increase in renewable energy sources, advances in smart grid technology, and implemented government schemes will shape the future of the energy market.

Due to the rollout of half-hourly meters and smart meters, businesses can expect more accurate energy data readings. More accurate meter readings mean that your business will not be charged for any energy you don't use. If your energy consumption is currently based on estimated meter reads, then you could be getting charged for energy that you don't use.

How can Purely Energy Help?

Purely Energy can monitor your usage patterns, ensure you don't fall into higher out-of-contract rates, and manage your energy contracts for you.

We can provide you with a free kVA analysis and organise a kVA reduction to reduce your energy bills further. 

We have a team of energy experts who can advise you on current government schemes, such as the Climate Change Levy (CCL) exemption and VAT reduction. Read more about reduced VAT and CCL here.

We will gladly assist you if you have any queries about non-commodity costs or would like help lowering your energy costs. Get a quick quote here

Contact us on 0161 521 3400 or email us at Info@purelyenergy.co.uk for any queries, and we will advise you on your next steps to ensure you can attain the lowest energy bills possible.

This Article was written by Megan Glover of Purely Energy. If there are any suggestions or questions - Please get in touch with us.