Essentially, there are two parts:
- The price of the energy itself (commodity cost). This is the cost that WME controls and we try to deliver as competitively as possible, through our risk managed trading strategy.
- The non-energy costs (non-commodity costs). These are various other charges and fees that can significantly impact the final billed amount. These additional charges are collectively known as non-commodity costs, and they play a crucial role in shaping your energy bills.
In this blog post, we will explore what non-commodity costs are and break down the different components that make up these costs.
What Are Non-Commodity Costs? Non-commodity costs are the additional expenses that you incur on your energy bills, apart from the actual cost of the electricity or gas you consume. 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 the key non-commodity costs that contribute to your gas and electricity bills:
- Network Charges:
- Distribution Costs: Expenses associated with the transportation of electricity or gas from the national grid to your home via local distribution networks.
- Transmission Costs: Costs incurred for the high-voltage transmission of electricity over long distances.
- Environmental and Renewable Energy Levies:
- Renewable Obligation (RO): A scheme that promotes the generation of electricity from renewable sources.
- Feed-in Tariffs (FiTs): Payments made to individuals and businesses that generate electricity from renewable sources like solar panels or wind turbines.
- Contracts for Difference (CfD): Support for low-carbon electricity generation projects, ensuring a fixed price for their output.
- Capacity Charges:
- Capacity Market Costs: Payments made to power plants to ensure they are available to meet electricity demand during peak periods.
- Metering Costs:
- Costs associated with the installation, maintenance, and reading of electricity and gas meters.
- Electricity Market Reform (EMR) Costs:
- Costs linked to government initiatives aimed at reducing carbon emissions, such as the Carbon Price Support (CPS) and the Capacity Market.
- Regulatory Costs:
- Costs related to compliance with industry regulations and standards, including Ofgem's oversight of the energy market.
- Energy Efficiency and Social Obligation Schemes:
- Costs associated with programs designed to promote energy efficiency and assist vulnerable consumers with their energy bills.
- Smart Metering Costs:
- Expenses related to the rollout of smart meters, which enable more accurate billing and help consumers manage their energy usage.
- Balancing and Settlement Costs:
- Expenses incurred by energy suppliers for ensuring a balance between supply and demand in the energy market.
- Taxes and Duties: - VAT (Value Added Tax) and Climate Change Levy (CCL) are taxes applied to energy consumption.
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. While WME cannot control the cost of many of the non-commodity costs, we do validate them to ensure that they are correct for each WME customer.
Changes in energy regulations and government schemes can impact the composition of non-commodity costs and WME endeavours to keep customers up to date with any changes that may impact their bills.