There are many charges on your business energy bills that are not related to the actual cost of the energy itself. These 'non-commodity' costs are associated with delivering and managing that energy, including network maintenance, system balancing, government levies such as green taxes, and other third-party charges.
These non-commodity costs can make up around 60% of the total invoiced cost of electricity and 40% of gas.
Important to note: These costs can vary wildly and the vast majority are set to increase considerably. They are included in every energy contract—whether fixed or flexible. However, there are ways to manage and potentially reduce these costs by choosing the right contract structure and identifying factors that affect the prices you pay.
Choosing the right energy contract
Fixed Contracts: A fully fixed contract locks in your unit rate and standing charge for the entire contract period. While this provides price certainty, suppliers include risk premia to cover potential increases in non-commodity costs.
Flexible Contracts: In contrast, a flexible contract ‘passes through’ non-commodity costs as per the published rates, without pre-built risk premiums. Instead, these costs are subject to annual reconciliations, meaning you pay the actual rate at that time—whether it increases or decreases.
How This Can Benefit Your Business
By removing the supplier’s risk premium in a fixed contract, businesses—especially those with longer-term contracts—can often see cost savings. Comparing both contract options and understanding your risk appetite can help you determine the best strategy for your energy procurement.
Other Ways to Reduce Your Non-commodity costs
Beyond contract structure, there are additional ways to manage and lower your non-commodity charges:
Climate Change Agreement (CCA)
If your business is in an eligible sector, you could receive a discount on the Climate Change Levy (CCL), reducing your energy costs. Percentage discounts for holders of a CCA are currently 92% for electricity and 89% for gas.
The MIN-MET scheme is an extension of the Climate Change Agreement which gives certain mineralogical and metallurgical processes up to 100% exemption from the CCL.
Energy Intensive Industries (EII) Scheme
If your business qualifies as an energy-intensive industry, you may be eligible for exemptions on certain non-commodity charges. Namely, the Renewables Obligation (RO), Feed-in-Tariff (FiT), Contracts for Difference (CfD) and Capacity Market (CM) charges.
Further to recent changes in legislation, the EII scheme has now been expanded to contain Distribution, Transmission and BSUoS charges, so the exemption available to your business could encompass the majority of your electricity invoices.
Our quick eligibility check is used to determine if your business can benefit from the EII scheme. We have saved over £4 million for our clients so far, you could be next!
Targeted Charging Review (TCR)
Changes in TCR supply capacity directly impact energy costs by determining the banding a business falls into. Higher agreed capacities result in higher TCR charges. By adjusting your available capacity, you may move into a lower charging band and so reduce the TCR charge on your bills. Following a comprehensive review of our client's business, we saved them £120,000 in TCR costs.
By reviewing your energy strategy and exploring these cost-saving measures, you could significantly reduce your overall energy expenses.