Non-commodity costs make up nearly two thirds of a typical I&C business electricity bill

By October 2023 non-commodity costs could make up almost two thirds of a typical I&C business electricity bill, according to our expert price forecasts presented in our latest Non-Commodity Costs webinar. Strategic Account Manager and host of our popular Non-Commodity Cost webinars, Mark Cox, recaps on the highlights from our April webinar.

It’s the start of a new financial year, lockdown restrictions are finally easing and in the energy sector, the Targeted Charging Review (TCR) is the hot topic right now, which featured heavily in our non-commodity price forecast webinar.

TCR changes are expected from April 2022, but with a likely delay (still to be confirmed by Ofgem) for the changes to transmission charging (TNUoS), there could be another two winters for large businesses to maximise the value of triad avoidance.

How will a fixed DUoS rate impact large business consumers?

For distribution costs (DUoS), we will see a much higher fixed rate on bills from April 2022 based on a new banding structure. Business sites are assigned to a band by their voltage level and capacity for larger consumers or net consumption volume for smaller consumers. The banding was set at the end of 2020 by the DNOs based on a two year average and these bandings are now fixed until 2026.

In the webinar, we looked at a case study using a High Voltage (HV) connected supply site, to illustrate how DUoS charging will change from 2021 to 2022, using a sample of four distribution regions. Whilst there are variances between the forecasted unit rates across all regions, the overall trend is the same with a reduction in the red/amber/green time of day consumption charges. From 2022, it will cost less to consume power in the evening, on a weekday (red peak) and the off-peak charges (amber and green) will almost disappear in 2022, see chart below.

Capacity Market cost is forecast to reduce by 50%

Our pricing team have updated our Capacity Market projections with the latest T-1 and T-4 auction results last month. The T-1 auction cleared at a record high price of £45 KW/year, but only for 2.25 GW of top-up capacity, whilst the T-4 auction (capacity contracts for delivery four years ahead) cleared at £18 KW/Year for 40.8 GW.

Our price forecasts for this year and 2022 are predicted to be much lower than last year’s Capacity Market cost by almost half, forecasting the cost for Winter 2021 at just below £60/MWh and £46/MWh for Winter 2022.

I&C business electricity bill breakdown

If we take a typical, medium sized business energy bill, the overall cost is looking relatively flat from 2021  through to 2023. The Wholesale Price has seen an increase since recovering from the pandemic, sitting at almost 7p/kWh for the October 2021 contract, that is nearly 42% of the total bill.

By 2023 we see the total electricity cost sitting just above 16p/kwh (or £160 MWh) with non-commodity costs making up nearly two thirds (64.1%) of an energy bill and the wholesale cost making up just 36% of the overall cost.

The sum of all the Non-Commodity parts is what continues to underpin high electricity costs, so we encourage our customers and partners to join our Non-Commodity Cost webinars, scheduled three times a year (April, July and November) to stay ahead of the curve, with expert price forecasts from our Head of Pricing, Tom Putney and his team.

For more insights, listen to our latest non-commodity costs podcast.