Understanding non-commodity charges on business energy bills
When reviewing an energy contract, most businesses naturally focus on one number: the unit rate.
But the price you pay for the electricity or gas itself is only part of your overall energy cost.
For businesses across Scotland’s food and drink sector , where refrigeration, heating, processing, production and storage can result in significant energy consumption, understanding the additional charges that make up an energy bill can be particularly important.
These are often referred to as non-commodity charges.
What are non-commodity charges?
Broadly speaking, an energy bill can be split into two areas.
Commodity costs relate to the wholesale electricity or gas being purchased on your behalf.
Non-commodity costs cover many of the additional costs associated with transporting, distributing and supporting the energy system, as well as applicable policy and network charges.
Depending on your contract structure, some of these costs may be incorporated into your unit rate, while others may appear separately.
This is one reason why comparing two contracts based purely on their headline p/kWh rate can be misleading.
What charges could be included?
The exact make-up of a business energy bill will depend on the site, meter, contract and supplier, but non-commodity costs can include areas such as:
- Transmission and distribution network charges
- Standing charges
- Capacity-related charges
- Balancing and system costs
- Metering and data costs
- Government policy and environmental costs
- Other industry and regulatory charges
Individually, some may appear relatively small. Collectively, however, they can represent a significant proportion of a business’s overall energy expenditure.
Why does this matter for food and drink businesses?
Energy can be a substantial operating cost for businesses throughout the Scottish food and drink supply chain.
Production lines, refrigeration, cold storage, ovens, brewing, distilling, ventilation and temperature-controlled environments can all contribute towards significant consumption.
That makes understanding the total cost of energy, rather than simply the headline rate, increasingly important.
A seemingly competitive contract doesn’t necessarily represent good value if other charges haven’t been properly considered.
Fixed or pass-through?
Another important consideration is how non-commodity costs are treated within your energy contract.
Depending on the product and supplier, certain charges may be fixed within the agreed price or passed through to the customer as costs change.
Neither approach is automatically right or wrong.
The important thing is understanding what you’ve agreed to, where the risks sit and how changes to underlying charges could affect your future energy costs.
For businesses trying to forecast production costs and protect margins, greater visibility over these charges can make budgeting considerably easier.
Don’t just compare the headline rate
This is where energy procurement can become more complicated.
Imagine receiving two contract offers.
One has the lower unit rate and initially appears to be the obvious choice. The second has a slightly higher headline rate but offers a more favourable overall cost structure.
Without analysing the complete contract, it’s possible to select the apparently cheaper option and ultimately pay more.
The question shouldn’t simply be:
“What’s the cheapest unit rate?”
It should be:
“What’s the total expected cost to our business?”
When did you last properly review your energy bill?
For many businesses, energy invoices are checked to make sure the amount looks broadly right before being approved and paid.
But when was the last time someone examined exactly what sits behind those costs?
At Enexus Energy, we help businesses understand their complete energy position, from procurement and contract structure through to invoice validation and ongoing energy management.
That means looking beyond the headline price to understand what you’re paying, why you’re paying it and whether there are opportunities to reduce unnecessary costs.
Support for Scotland Food & Drink members
As an affiliate partner of Scotland Food & Drink, Enexus Energy can provide members with a complimentary review of their current energy arrangements.
Our team can analyse your existing contracts and invoices, help explain the different charges you’re paying and identify potential opportunities to improve your energy strategy.
And you don’t necessarily need to be approaching renewal.
Understanding your current position today can help your business make better-informed decisions about what comes next.
Your unit rate only tells part of the story.
Speak to Enexus Energy to arrange a complimentary review of your business energy costs and find out what you’re really paying for.
Andy Radcliffe
01253 966964 / andy.radcliffe@enexusenergy.co.uk
