Pass-through Contracts Explained

What costs are included in my energy bill?

Your energy bill is made up of more than just the cost of the actual electricity and gas (Commodity) you use. The price you pay includes all the other costs (Non-commodity) associated with the process of distributing, maintaining & managing the network, as well as government taxes & renewable energy levies. In a typical electricity bill these non-commodity costs now add up to almost 65% of the total price you pay, and this proportion of cost is increasing year by year.

What are Pass-through costs?

Because the non-commodity costs represent such a large part of the total bill, increasingly energy suppliers are seeking to exclude these from their unit rates or standing charges and instead, are passing these costs through as a separate item on your bill, hence the name ‘Pass-through costs’. Nevertheless, these are real and unavoidable costs and must be included in any comparison of rates prior to acceptance of contract. Any contract proposals from Powerful Allies always include an estimate of both commodity and non-commodity costs, so you can compare like for like.

Why do some suppliers seek to exclude Pass-through costs?

Non-commodity costs change (usually increasing) and unlike the commodity which can be bought at a fixed rate when you agree a contract, non-commodity prices change over the time of an energy contract. We are seeing more and more suppliers deciding they no longer want to carry the risk of non-commodity increases during the life of a contract so are more often moving this risk onto your business. Furthermore, and crucially, by excluding key non-commodity costs from their quotations, suppliers can make their supply seem significantly lower in cost than it is in reality.

I’m on a fixed energy contract, can a supplier increase my costs?

Powerful Allies works hard to negotiate truly fixed price and fully inclusive contracts, so once a fixed contract is signed the energy supplier is expected to honour the rate agreed for the duration of the contract. But with more suppliers adding Pass-through costs as additional charges, we are also seeing more suppliers adopting contract terms which allow them to pass on certain charges should they choose. These are rarely highlighted at the point of signatory. As your Energy Partner, Powerful Allies will always alert you to supplier specific exclusions and build these into any comparative analysis enabling you to make an informed choice.

I’m about to renew my energy contract, are Pass-through costs included?

If you are in the process of, or know that your energy contracts are coming up for renewal, you should seek absolute clarity from your business energy consultant or business energy supplier whether the contract offer is fully fixed. You should be very specific in this request, requiring them to specifically state that the price will not increase regardless of terms and conditions. If this is confirmed and any future increases occur then you have a position on which to challenge. Powerful Allies contracts are always fixed and fully inclusive, unless specifically requested otherwise. 

Should your business or school carry this risk?

Every business or school is unique and your energy needs are equally diverse, but we believe that for the vast majority of clients, fixed and fully inclusive energy tariffs achieved through genuine competitive tender offer the best value and give the greatest peace of mind to busy business owners and managers. Powerful Allies does not believe clients should carry risk

What are the benefits of a fixed price, fully inclusive tariff?

With a fixed and fully inclusive tariff, you are able to receive peace of mind. This will enable you to focus on running your business with limited time needed to review and validate your energy bills. With a fully inclusive and fixed tariff you get:

  • Makes setting budgets and financial forecasting easier
  • Simpler and easy to understand bills
  • Suppliers absorbs the risk of any cost increases
  • Straight forward administration if you need to pass on or split out energy costs
  • Enables direct comparison of competitive tender results, with like for like pricing and transparency of contract.

Non-commodity costs explained

What are non-commodity costs?

The non-commodity costs (also known as ‘third party costs’) include the many charges that make up the energy bill which are not for the electricity (the commodity) itself. These compulsory charges cover the cost of delivering electricity, balancing the grid and all network costs. Also included are taxes and levies, primarily from the government in order to support the development of renewable energy and reduce carbon emissions. The main non-commodity costs include charges such as: Transmission Network Use of System (TNUoS), Distribution Use of System (DUoS), Renewable Obligation (RO), Contract for Difference (CfD), Feed in Tariff (FiT) and Capacity Market (CM) to name but a few.

Transmission Network Use of System (TNUoS)

These charges recover the cost of installing and maintaining the transmission system in England, Wales, Scotland and offshore. It covers the cost of transmitting electricity from power stations to grid supply points across the high-voltage, high-volume transmission system.

Distribution Use of System (DUoS)

DUoS charges are levied by the UK’s regional DNOs (Distribution Network Operators). They contribute to the operation, maintenance and development of the UK’s electricity distribution networks. It also covers the cost of distributing electricity from the national grid to your premises via a local distribution zone.

Balancing Service Use of System (BSUoS)

BSUOS charges represent the costs incurred by National Grid for their actions in maintaining the balance of demand and quality and security supply on the network. BSUoS charges are daily charges and are paid by suppliers and generators based on their energy taken from, or supplied to the National Grid in each half-hour Settlement Period.

Renewables Obligation (RO)

The RO charge was introduced to encourage large-scale renewable electricity generation and help the UK government meet its 2020 target of having 15% of energy generated from renewable sourced. It closed to new generators in April 2017 but will be replaced by FiT

Feed-in-Tariff (FiT)

FiT is a subsidy scheme introduced in 2010 to support small-scale renewable generation which closed to new entrants from April 2019. The subsidy payment for FiT generators is paid for by electricity consumers. The approximate cost increase in 2016/17 was over 10%.

Feed-in-Tariff Contracts for Difference (FiTCfD)

CfD generators have a contract with the government-appointed Low Carbon Contract Company (LCCC), guaranteeing them a fixed price for their exported electricity. The subsidy payment for these generators is paid for by electricity consumers through their supplier. This scheme has replaced the RO and FiT charges from May 2019.

Are you looking for more information?

The Powerful Allies team are here to help, please get in touch or call us on 01380 860196.