UK suppliers are increasingly passing through higher “non-commodity costs” to consumers, which are costs beyond the price of the actual gas or electricity. These pass-through charges, such as for the transmission network, meter operation, and government levies, are now a major part of energy bills and are rising due to factors like government policy (e.g., the Warm Home Discount expansion), infrastructure costs, and the costs of renewable energy schemes. As a result, these costs are becoming more visible on bills as suppliers are starting to show them separately, and they are becoming a significant focus for businesses and regulators looking to manage energy spending and ensure fairness.

What are Pass-Through Charges?

Non-Commodity Costs: These are costs that are separate from the price of the energy itself.

Examples: They include network charges (for transporting energy), meter operator charges, data collection fees, and levies for government policies and renewable energy generation.

Historical Context: These costs were previously often bundled into the unit rate or standing charge but are now increasingly shown separately.

Why are They Increasing?

Government Policies: Initiatives like the Warm Home Discount add costs that are passed on to all customers through the standing charge.

Infrastructure and Network Costs: Upgrades and maintenance of the energy networks (transmission and distribution) lead to higher charges.

Renewable Energy Schemes: The cost of supporting renewable energy sources, like the Contracts for Difference (CfD) scheme, is ultimately covered by consumers through their energy bills.

Increased Visibility: Suppliers are changing how they present bills, making these previously hidden costs more apparent to consumers and businesses.

What Does This Mean for Consumers and Businesses?

Higher Bills: Pass-through costs are now a significant portion of energy bills, especially for businesses.

Need for Management: Understanding and managing these charges is crucial for controlling overall energy spend.

Regulatory Attention: Ofgem is reviewing these costs and looking for ways to provide more choice in how customers pay them, such as by introducing lower standing charge tariffs.

Impact on Contract Choices: For businesses, securing fixed-term contracts can protect them from future increases in these non-commodity costs.