Understanding Distribution and Transmission Charges in UK Business Energy Bills

You may not know it, but there’s more to the cost of energy than what your business actually consumes. The transportation of electricity from its point of origin through the grid to your business also carries a cost.

These are known as Distribution Use of System (DUoS) charges and Transmission Network Use of System (TNUoS) charges.

Together, these network charges cover the cost of maintaining and operating the UK’s electricity infrastructure. For many organisations, they can make up a significant portion of the total electricity bill.

Historically, many of these charges were based on capacity and consumption levels, but industry reforms have introduced changes back in 2022 to how some network charges are calculated. As a result, parts of these charges are now applied using fixed or banded structures rather than purely consumption-based pricing.

If your business has previously invested in on-site generation or other measures designed to reduce DUoS or TNUoS costs, these changes may affect how those savings are realised.

Regardless, all businesses should seek to understand how network charges influence their electricity contracts and overall energy costs.

What do the charges mean?

Changes to electricity charging structures have focused on transmission and distribution network costs.

In particular, the reforms changed how residual charges are applied across the electricity system.

These changes mean that some network costs are now applied as fixed daily charges rather than purely consumption-based charges.

For example:

• Transmission residual charges may be applied as fixed daily costs rather than the previous £/MW system.
• Distribution residual charges may also be structured as daily charges rather than p/kWh costs.
• Businesses are allocated charging bands, which determine the level of certain network charges.
• Energy suppliers must ensure their billing systems reflect these updated charging structures and tariffs.

For consumers, this means that reducing consumption at peak times may not always lower network charges as it once did, since some of these costs are now fixed.

If your business falls on the lower end of consumption within a particular charging band, you may find that these fixed charges make up a larger percentage of your total energy bill than they would for higher-consuming organisations within the same band.

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