The total amount we pay for energy can be broken down into three different charges. First is the wholesale price of the actual amount of power we use (the commodity). Then there is the cost of the infrastructure delivering that energy through transmission and distribution networks, which ensure a reliable supply across the country. And finally, a variety of government fees and taxes designed to cover the cost of environmental policies and energy system support schemes.

Energy companies divide these non-commodity costs between all their customers as part of your monthly or quarterly bill.

In 2011, non-commodity costs accounted for around 36% of energy prices. By 2021, this had risen to 64%, and it is expected that they will make up around 70% of our utility bills by the end of this decade, as more investment is directed towards renewable generation and system resilience.

In simple terms, the non-commodity charge is calculated by dividing the cost of providing energy to the nation by how much we use. When demand is high, wholesale prices tend to rise while non-commodity costs fall proportionally. However, as we move towards net zero and energy efficiency improves, businesses may see non-commodity costs increase, even when wholesale prices fall, as levies are still required to cover the cost of transitioning to a low-carbon energy system.

So, what do these non-commodity costs cover, and how can you make sure you’re not paying more than you have to?

Building and maintaining a network of cables, pylons and transformers comes at a cost, particularly across the UK’s distribution networks, which are essential for delivering electricity safely and consistently.

These costs vary from provider to provider and depend largely on the type of power plant supplying the energy. This is because there must be a balanced and consistent supply flowing across the network to prevent damage or power cuts.

Renewable power from solar and wind sources introduces additional complexity, as renewable generation can be more variable than traditional gas or nuclear power. As a result, balancing the grid becomes more challenging, and the shift towards renewables can increase the cost of maintaining stability across distribution networks.

These taxes largely fund green energy programmes led by the government, helping to support the transition to a cleaner energy system. This includes schemes such as the Feed-in Tariff (FiT), Contracts for Difference (CfD), the Renewables Obligation (RO), and the Capacity Market (CM), all of which are designed to encourage investment in renewable generation and ensure security of supply.

In addition, businesses also contribute through environmental charges like the Climate Change Levy (CCL), which is applied to energy usage to incentivise improved efficiency and reduced emissions.

Covid-19 had a significant impact across the economy, including energy costs. Some non-commodity fees are set at the beginning of each year and weren’t immediately affected by national lockdowns. Others are more dynamic and were influenced by changes in consumption patterns, particularly with increased remote working and reduced commercial activity.

During lockdown, electricity demand dropped significantly across the UK, following weeks of high wind output in early 2020. This created a surplus of supply driven by strong renewable generation, combined with reduced demand, which led to balancing costs of nearly £50m to stabilise the system.

Suppliers were also forced to sell excess energy at a loss on the European market, one of the rare occasions where it may have been cheaper, in the long term, to leave lights on rather than reduce demand.

The lockdown also affected government-backed schemes such as the Feed-in Tariff (FiT) and Contracts for Difference (CfD), as these are reviewed regularly and respond to fluctuations in renewable generation and demand. When generation is high and demand is low, the cost of maintaining these schemes can shift, impacting how much businesses contribute through their electricity bill.

However, it’s not all bad news. Lower emissions during this period contributed to environmental improvements, and over time, businesses may see reduced contributions towards taxes like the Climate Change Levy (CCL) as sustainability targets are met.