What are non-commodity costs, and why are they so expensive?

 

What are non-commodity costs, and why are they so expensive?

Electricity prices are high at the moment. There’s no way around that and it is something which we are all feeling. It may come as a surprise however that around half of your elec bill is due to what are known as non-commodity costs (NCCs,) and it is these which are driving up your electricity bills.

But what are NCCs, and why are we paying so much in non–negotiable pass through charges?

What are nccs?

NCCs can mostly be broken down into two sub-sections: network costs and Government policy costs.

Network Costs – Approximately 23-25% of your bill in 2016

Did you know that there are more than 818,000km of lines and cables running up and down the UK supplying power to every office, house and street lamp? That’s further than the distance to the moon and back! With power currently flowing to almost 30 million customers in the UK and with an estimated 100,000 new consumers connecting to the network every year, maintaining a smooth flow of power is a lot more complicated than it may seem and around a quarter of your bill goes towards investment in and the maintenance of this network. Ofgem regulate these costs and since 2002 the improvements paid for by these charges include a 40% decrease in power cuts and a 46% decrease in power cut duration.

Government Policy Costs- Approximately 20-25% of your bills in 2016

Government policy costs are currently aimed at reducing carbon emissions within the energy industry and supporting the development of renewables across in the UK. These costs have been rising steadily over the last few years and are expected to continue to rise more sharply as the focus on being Green becomes more and more important. Some of these charges includes:

Climate Change Levy- an environmental policy aimed at reducing carbon emissions within the industry.

Renewable Obligation- used to support the development of renewable power generation.

Feed-in-Tariff – a charge which goes to subsidising or reimbursing households and businesses generating power though the use of renewables, both for themselves and to feed back into the grid.

Contracts for Difference- These charges represent large scale long-term developments, the majority of which are in the early stages of development. Nearly 6GW of new CFD-funded capacity is due to become available by 2020.

What happens next?

In 2014 the price of wholesale electricity fell significantly in response to plummeting oil prices, and the Government took the opportunity to raise their taxes and levies significantly in order to contribute more towards Green energy without increasing the cost to consumers.

Since 2014 these Government charges have risen year on year and currently non-commodity costs account for around half of your energy bill – and this is expected to rise.

Whilst Ofgem ensures that network costs go towards the upkeep of our distribution networks and upgrading the system wherever possible, increasing demand on the network requires additional investment and these costs will be passed onto consumers.

By 2020 the majority of consumers are expected to have non-commodity costs account for around 60% of their electricity bill 

This means that we should all be prepared for increases in electricity costs even if the wholesale prices go down. The best way to protect yourself from these price increases is to lower your consumption. Speak with our OPTIM-eyes team today for a no-obligation review into your power efficiency & renewable options.

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Kieron Blundell, MAXIMeyes