Non-commodity costs (NCCs) are making up an ever-growing proportion of business energy costs, and now account for more than 50% of electricity and nearly 40% of gas bills for business customers. Since their introduction in 2010, they’ve been rising steadily and by 2020, they could comprise around 60% of customers’ electricity bills. As a result, we believe it’s become more important than ever that customers understand what proportion of each element contributes to the total billable price.
NCCs are obligatory third-party charges, over and above direct energy costs. These include charges that help maintain the electricity infrastructure, such as Transmission Network Use of System (TNUoS) and Distribution Use of System (DUoS). They futureproof our generation mix through Contract for Difference and ensure energy is available even when demand is at its highest.
The UK Government has set ambitious targets to reduce carbon emissions to at least 80% of 1990 levels by 2050 and contribute to targets to limit global temperatures by as little as possible above two degrees celsius. To help achieve this, it has introduced government schemes to encourage the shift towards renewables for which costs are levied on suppliers. You can learn more about non-commodity costs in our useful online guide.
With many of these non-commodity costs now firmly embedded in the energy ecosystem, it’s crucial customers understand them to help them make an informed decision about which product to choose through the procurement process and mitigate unexpected price rises. However, all too often when we speak to customers, we find they are uncertain about the way these costs are presented. For example, the way third party charges are bundled together by energy suppliers can make optimisation of time of use specific NCCs difficult, while understanding the impact of a new NCC that wasn’t previously budgeted for on the bottom line can be almost impossible.
We’ve listened to this feedback from customers and have added some functionality to our pricing system to help break down charges into more granular detail. This means that, on request, customers can get full sight of their costs.
The extra functionality allows us to separate the commodity and non-commodity cost components to offer full transparent pricing. It makes reporting available for each cost component within the contracted price for both our half-hourly and non-half hourly customers. By providing transparency of these costs, customers can be confident that the prices we’re charging accurately reflect their cost of supply and give our customers and TPIs confidence in our forecasts, while allowing them to benchmark our prices against competitors.
We believe that greater transparency empowers our customers by giving them more insight into how these costs relate to the way they use energy. This matters because, while some non-commodity costs are fixed or known in advance, others require forecasting. It’s particularly important if contracts span multiple years, as variables, such as weather and fluctuations in demand, become harder to predict as time moves on. As a result, the price for some customers, such as those not on our Protect tariff, could change during the life of the contract. Needless to say, at SSE Business Energy, we have a dedicated team of energy economists working through the different sensitivities and outcomes possible for each non-commodity. This helps ensure we can give the most balanced view and a competitive market price for over 550,000 Business Energy customers across the UK.
We believe we’ve made great strides forward and are helping more of our partners and direct customers to enable transparent analysis of all price components.
To find out more about our different products, including Protect and Choice, which provide non-commodity optionality, please visit our website.
Like this post? Stay informed by signing up to email updates