You may not know it, but there’s more to the cost of energy than what your business actually consumes. The actual transportation of that energy from its point of origin and through the grid to your business also bears a cost known as distribution use of system (DNoS) and transmission use of system (TNUoS) charges. These costs can be up to 60% of your total energy bill.
Currently, both of these charges are based on capacity and consumption. However, an upcoming change will potentially impact many businesses in the UK, as the current charges will be scrapped in favour of fixed costs. If you have, under the old system, added on-site generators or taken other measures to reduce TNoS or DNoS costs, this change will be of particular note.
Regardless, all businesses should seek to understand what these changes mean for their energy contracts. If you’re signing a new electricity contract in 2021, you must be aware of the changes – as they’re coming on the 1st of April 2022.
What will the changes mean?
The changes will come into effect in 2022 and will first focus on transmission and distribution charges. They will mean that from April 2022:
- Transmission residuals will be charged as a fixed cost £/day for all customers as opposed to the current £/MW system.
- Distribution residuals will be charged as a £/day rather than a p/kWh method and will depend on
Changes will occur by first being allocated one of several charging bands which determine charging thresholds. Suppliers must then adjust billing systems to cater for new billing methodologies and implement new tariffs for these charges.
For consumers, this means that reducing consumption at peak times will no longer help reduce DUoS or TNUos costs – which will be set, fixed charges. If you’re on the lower end of consumption for your new fixed charging band, you’ll be paying more as fixed charges which are a percentage of your total bill than a business who consumes more than you but is on the same band. If you’re a high consumer, you’ll likely be paying a smaller proportion in fixed charges compared to lower consumers.
New advice for electricity buyers in 2021
All of this essentially boils down to some simple advice: when shopping for new electricity contracts, it pays to be aware of these changes and to understand what they mean.
Consulting and Risk Services Director Mark Callaway from our strategic partners BEOND Group shared the following useful advice for buyers in 2021:
Here are a few new checks you should make when negotiating contracts:
- have suppliers updated your meters with the correct bands and new line loss codes?
- have suppliers priced your contract offer using the correct size and the new distribution and transmission charges?
- is there anything in the contract small-print which says the price can be reopened, look for phrases like “change in industry agreements” or “a material change in methodology”?
- have you been over-charged for aggregated meters?
- have you been given written assurances by sales people, even though the contract small-print tells you not to rely on these assurances?
If you need help understanding these changes or want advice on how to manage energy costs in your business in a more financially and environmentally sustainable way, get in touch with us today.