Thursday, February 22, 2024

Business Energy: Third-Party Costs at an all-time high

Paul Miller, Business Energy expert at renewable energy company Drax

Wholesale energy prices have risen significantly over the past year, but that’s not the only thing pushing up business energy bills. Third-Party Costs (TPCs) – which typically make up 60% of a business’s total energy charges but are currently sitting at around 40% – are at their highest-ever point. Despite the 20% decrease, their impact on a business’s overall energy costs is still substantial, which means the slightest change will have a big impact. 

The latest Third Party Costs Guide from Drax shows that high inflation, regulatory changes and a volatile energy market are among the factors contributing to the rise in underlying charges for TPCs. 

Below we provide a snapshot the key trends to help businesses better understand these changes.

  • Distribution Use of Systems (DUoS) – rising due to lower national demand, higher inflation, and the expected impact of electricity network charging reforms
  • Transmission Network Use of Systems (TNUoS) – increases fuelled by inflation, the generation revenue cap, and changes in Transmission Demand Residual (TDR) charges 
  • Balancing Services Use of Systems (BSUoS) – significant rises due to volatility, cost deferral through CMP395 and the likely impact of CMP361
  • Capacity Market (CM) – increasing at T-1 2022/23 and T-4 2025.26 auction prices were their highest ever recorded; parameters for upcoming auctions are now set
  • Renewables Obligation (OB) – price is rising, and mutualisation costs will again have an impact in 2024
  • Contracts for Difference (CfD) – levy volatility set to continue given current wholesale prices

Paul Miller, Business Energy expert, commented: 

“Soaring wholesale prices aren’t the only thing pushing energy bills up. Third-Party Costs (TPCs) – which typically make up 60% of a business’s total energy charges but are currently sitting at around 40% – are at their highest-ever point. Despite the 20% decrease, their impact on a business’s overall energy costs is still substantial, which means the slightest change will have a big impact. 

Just like wholesale energy prices, TPCs are sensitive to what’s happening in the market and can rise and fall considerably each year. Our Spring 2023 Third Party Cost Guide found that many of the underlying charges, such as Renewables Obligation (RO), Balancing Services Use of Systems (BSUoS) and Distribution Use of Systems (DUoS), are all going to rise this year, largely due to inflation and increased volatility within the market.

We’re working closely with our customers to help them understand these changes and minimise their costs going into 2023.”

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