Wholesale electricity costs have fallen more than 10% since 2012, but energy bills are rising
The final price of electricity to consumers is high. Non-commodity costs (NCCs) are increasing as a proportion of our energy bills. Costs for new renewable and system support will soon be realised in energy bills. As such, consumers can expect to see even higher charges in the near-term.
What are Non-Commodity Costs?
NCCs relate to the delivery of electricity to a customer. These are costs which do not form part of the price of the energy itself. These obligatory charges, levies and taxes from third parties, that cover the cost of various issues related to delivering energy. This includes network costs, the cost of delivering the electricity to the meter, and balancing the power system. There are also government policy costs which are currently aimed at reducing carbon emissions and supporting renewable energy development. These charges include the Climate Change Levy (CCL) along with subsidy schemes such as Renewables Obligation (RO), Feed-in-tariff (FiT) and – more recently – Contracts for Difference (CfD).
Non-commodity costs in 2015/16 accounted for around 50% of a customer bill, as the cost of growing renewable generation through a variety of subsidy schemes is passed on to consumers. We expect the wholesale element of consumer bills to fall further in the coming years. This proportion of the cost will fall as the market fully realises the costs of the new CfD scheme. We also anticipate another rush to qualify for the RO scheme ahead of its full closure in April 2017. This is set to push up non-commodity charges further.
Utilitywise has forecast that NCC charges will account for over 60% of electricity costs by 2020.
Contracts for Difference
The first Contracts for Difference project was connected to the grid in August this year. Related CfD charges may have already begun to appear. Each consumer will pay the charges. However, the granularity on their bills will depend on the type of energy contract taken out. The 12MW Charity Farm solar installation is now up and running, having received CFD contract back in 2012. With CFD projects representing large scale long-term developments, the majority are in the early stages of development. Nearly 6GW of new CFD-funded capacity is due online by 2020, which will steadily increase the costs of CFD to more than £2 billion.
Just one CFD auction has taken place to date. The majority of projects under construction secured funding under the uncompetitive Final Investment Decision Enabling for Renewables (FIDER) scheme.
As the makeup of customer electricity bills continues to change in the coming years it is imperative that businesses are aware of the impact Non-Commodity Charges (NCC) will have on their costs.
Take control of your energy bills
The Market Intelligence team at Utilitywise can conduct a Long-term Price Forecast Report , detailing delivered pricing for the next 5-25 years. This is a major asset to businesses which can help keep costs down by budgeting for the future. Several elements of a business’ NCC charges are dependent upon consumption and behaviour. Find out more about our Long-term Price Forecast Report here.
Utilitywise can help you take control of your utility consumption with a range of controls and reductions services, ensuring you can better manage your usage, take control and avoid the sting of increased charges.