Energy Bill Shock: How UK Businesses Can Adapt to Escalating Third-Party Costs

UK businesses should prepare for further increases in energy bills as third-party costs (TPCs) reach unprecedented levels. Third-party charges (TPCs), or non-commodity costs, refer to industry charges your energy supplier incurs and are then passed on to domestic and business users in their electricity bills.

Broadly speaking, an electricity bill is made up of three main elements;

      1. The wholesale cost of the energy used.

     2.   The ‘Third Party Costs’ attributed to the delivery of electricity, improvement and upkeep of network infrastructure (network  charges) and Government originated charges for investment in future generation (environmental charges).

     3.   Additional supplier charges to cover the cost of supplier billing, metering, customer services and profit margin.

A recent report by Drax reveals that TPCs are expected to rise this year. The substantial increase in wholesale prices means the TPCs portion of a typical energy bill has gone down from 60% to around 40%. However, with the underlying charges for TPCs at their highest point ever, even the slightest increase can have a significant impact.

The increase in TPCs is due to multiple underlying charges such as Renewables Obligation (RO), Balancing Services Use of Systems (BSUoS), and Distribution Use of Systems (DUoS), all of which are set to increase in the upcoming year. In addition, factors like inflation and market volatility are driving up these charges, making it challenging for companies to manage their budgets amidst rising energy costs.

Drax’s report highlights that the cost of balancing the energy system has significantly increased in the past year. The National Grid Electricity System Operator (NGESO) forecasts total costs for the 2022/23 period to reach £4.7 billion, up from £3.5 billion in the previous year. This increase is due to higher market prices and tighter system margins, which have resulted in NGESO paying prices of £3,000/MWh and more for specific half-hour periods.

Drax also projects that the 2022/23 period will end with a rate of £9.75/MWh, compared to the previous year’s £7.01/MWh.

In February, the energy industry experienced notable developments with the Capacity Market (CM) auctions taking place. The T-1 auction, procuring capacity for winter 2023, secured 5.8GW of capacity at a rate of £60/kW. This is the second-highest T-1 auction outcome to date. The T-4 auction, procuring capacity for winter 2026, cleared at a rate of £63/kW, more than doubling the previous record of £30.59/kW.

Drax’s Sales Director, Paul Miller, commented on the high cost of TPCs in the energy market, explaining that they are sensitive to market fluctuations and can change significantly each year. The “Spring 2023 Third Party Cost Guide” anticipates that charges like RO, BSUoS, and DUoS will rise this year due to inflation and increased market volatility.

What does this mean for a business?

The surge in third-party costs (TPCs) means energy bills will likely increase significantly.

Higher energy costs can strain a company’s budget, potentially affecting its competitiveness, profitability and financial stability. As a result, business owners may need to reassess their energy consumption patterns, explore energy efficiency measures, or consider renegotiating their energy contracts to mitigate the impact of these rising costs.

Additionally, business leaders should stay informed about energy market trends and developments, such as the Capacity Market (CM) auctions, to better understand the factors influencing energy prices and to make informed decisions about their energy management strategies.

What should I do as a key stakeholder in a business?

As a business leader facing the challenge of rising energy costs, you can take several steps to mitigate their impact on your business:

• Review your energy contracts: Assess your current energy contracts and tariffs to ensure they are cost-effective and aligned with your business needs. Then, if needed, renegotiate or switch to a more suitable provider or plan.

• Implement energy efficiency measures: Identify areas where you can improve energy efficiencies, such as upgrading to energy-efficient lighting, installing better insulation, or optimising heating and cooling systems. Investing in energy-efficient equipment and technology can lead to long-term savings.

• Monitor energy consumption: Track your energy usage patterns and identify opportunities to reduce consumption during peak periods or shift usage to off-peak hours when prices may be lower.

• Consider on-site renewable energy generation: If feasible, invest in renewable energy sources like solar panels or wind turbines to generate your own electricity, which can help offset energy costs and reduce your dependence on grid-supplied power.

• Engage employees: Educate your employees about the importance of energy efficiency and encourage them to adopt energy-saving practices, such as turning off lights and equipment when not in use.

• Consult with Inteb for expert, tailored energy management advice. Our team can help you optimise energy usage and reduce costs. Get in touch today!

• Follow us on LinkedIn and Twitter for the latest energy market news, insights, and expert opinions. Stay informed and make better energy decisions.

• Proactively addressing rising energy costs can help protect your business’s financial stability and contribute to a more sustainable future.

At Inteb, our collaboration will encompass all the aspects discussed in this blog, ensuring your energy systems and management are optimised to their fullest potential. We will identify areas of improvement and transform them into robust pillars of efficiency. By incorporating these additional focus points, we will help establish the ideal energy infrastructure to support your business’s growth:

• Building management systems (BMS) Implement a building management system to monitor and control your facility’s energy consumption more effectively. A BMS can help you manage heating, ventilation, air conditioning, and lighting systems more efficiently, resulting in significant energy savings.

• Energy management: The process of benchmarking, tracking and optimising energy consumption to conserve usage in a building. There are essential steps in the process, including collecting and analysing continuous data, Identifying and optimisation in equipment schedules, set points and flow rates to improve energy efficiency. Benchmarking your energy performance against similar businesses in your industry to understand how your energy consumption and costs compare. This can help you set realistic targets for energy efficiency improvements and monitor your progress over time.

• Energy audits: Conduct regular energy audits to assess your business’s energy usage and identify areas for improvement. An audit can provide valuable insights into your energy consumption patterns and help you develop a tailored energy management strategy.

Ready to act against rising energy costs? Work with Inteb for a comprehensive approach to energy management. We’ll work together to optimise your energy usage, reduce expenses, and maintain sustainability and financial stability in the face of escalating third-party costs. Don’t wait, contact Inteb today and let’s start building a brighter, more energy-efficient future for your business.