Detailed Levy & Network Schemes Breakdown
An in-depth guide to the non-energy costs that significantly impact your commercial electricity bill, explaining how they are calculated and the primary factors driving cost changes.
Capacity Market Supplier Charge (CMSC)
What it covers
Its purpose is to ensure there is always enough reliable electricity supply available. This is achieved by paying generators to invest in new capacity or maintain existing capacity, and by encouraging active demand-side management.
What affects the cost
The government sets a target level of capacity for auctions, with generators pre-qualifying to participate. The total cost is determined by the clearing price of the auction and the amount of capacity secured.
How it is calculated
Calculated retrospectively. The total cost for the delivery year is divided by the actual total gross national demand during defined periods of high demand.
Impact on bills
This charge applies only to electricity used during defined high-demand periods: between 4pm and 7pm on working days, from 1 November to the end of February.
Contracts for Difference (CfD)
What it covers
A levy on suppliers used to support low-carbon electricity generation. Money collected is passed on to low-carbon projects with generating capacity of 5 MW or more.
What affects the cost
The level of support depends on the contracts awarded by the government and the amount of electricity those generators produce. Generators compete for these contracts in regular auctions.
How it is calculated
Calculated retrospectively. The total cost for the delivery year is divided by the actual total gross national demand during defined periods of high demand.
Impact on bills
This is a relatively new cost and is expected to increase over time.
Regulated Asset Base (RAB)
What it covers
A levy supporting the construction and operation of new nuclear power stations, currently applying only to Sizewell C. The level of support is based on an Allowed Revenue figure calculated by Ofgem.
What affects the cost
Main factors include the number of generators in the scheme, the Allowed Revenue set by Ofgem, and total national electricity demand.
How it is calculated
Calculated retrospectively on a daily basis. The Allowed Revenue is divided by the total volume of electricity consumed by all users, excluding Energy Intensive Industries.
Impact on bills
Presently lower than many other non-energy charges and expected to stay stable in the short term, though long-term impact is less certain.
Renewables Obligation (RO)
What it covers
A levy supporting large-scale renewable electricity generation. Closed to new generators in 2017 but will continue supporting accredited generators until 2037.
What affects the cost
Main factor is the extent to which the government wants to encourage renewable generation, which determines the yearly budget.
How it is calculated
Calculated using two government figures: the size of the obligation and a baseline price which changes yearly in line with inflation.
Impact on bills
Currently one of the largest non-energy costs on electricity bills.
Transmission Network Use of System (TNUoS)
What it covers
TNUoS charges fund the high-voltage national transmission of electricity from power stations to regional distribution networks, covering maintenance, operation, and development.
Key cost drivers
- Investment to maintain network reliability.
- Replacement of ageing infrastructure.
- Upgrades to connect new generation sources, especially renewable projects.
How it is calculated
Regulated by Ofgem through RIIO price control. Tariffs are fixed throughout the year and regional, with areas of high local generation typically seeing lower charges.
Impact on bills
Typically the third-largest non-energy cost, primarily recovered from demand customers.
Distribution Use of System (DUoS)
What it covers
DUoS charges cover the cost of delivering electricity from the transmission network through local distribution networks to homes and businesses.
Key cost drivers
- Investment in maintaining and upgrading local distribution infrastructure.
- Meeting changing customer demand.
- Connecting local embedded generation such as solar and wind installations.
How it is calculated
Ofgem sets revenue allowances for Distribution Network Operators (DNOs) through periodic price control reviews, typically covering five to eight years.
Each DNO allocates its approved costs across customer groups based on factors such as:
- Location
- Voltage level
- Capacity requirements
- Customer type
DNOs publish their charges approximately 15 months before the start of each regulatory year, which begins on 1 April.
Impact on bills
DUoS is generally the largest non-energy cost component of an electricity bill. Charges vary significantly by region, with London typically having the lowest charges and the South West among the highest.
Balancing Services Use of System (BSUoS)
What it covers
BSUoS charges fund the balancing of the electricity system. National Grid must continuously ensure that electricity generation matches demand, maintaining system stability at all times.
To achieve this, generators and large consumers may be paid to increase or reduce their electricity output or consumption.
Key cost drivers
- Increased levels of intermittent renewable generation, particularly wind power.
- Wholesale electricity market prices.
- National electricity demand levels.
Higher demand can help reduce the BSUoS unit rate by spreading costs across a larger volume of consumption.
How it is calculated
National Grid forecasts balancing costs and publishes summer and winter BSUoS tariffs ahead of each financial year. The tariff is calculated by dividing forecast balancing costs, including any previous over- or under-recovery, by forecast national electricity demand, resulting in a £/MWh charge.
Impact on bills
BSUoS represents an increasing proportion of non-energy costs, particularly as the electricity system incorporates more renewable generation and balancing requirements become more complex.
Energy Intensive Industry (EII)
What it covers
The EII Support Levy funds compensation for Energy Intensive Industries (EIIs) to help offset higher network costs, including TNUoS, DUoS, and BSUoS charges. The objective is to maintain the international competitiveness of UK energy-intensive businesses.
Key cost drivers
- The number of accredited EIIs participating in the scheme.
- The overall level of network charges.
How it is calculated
Actual network costs incurred by EIIs are submitted to the scheme administrator, Elexon, which calculates the total compensation due.
Currently, EIIs receive compensation equivalent to 60% of eligible network costs. The cost of this support is recovered from electricity suppliers based on their share of non-EII electricity demand and is charged monthly.
As compensation is based on actual costs, payments are typically made retrospectively.
Impact on bills
Although currently smaller than many other non-energy charges, the levy is expected to increase as network costs rise. Proposed reforms may increase compensation levels from 60% to 90%, potentially increasing the associated levy.
Feed-in Tariff (FiT)
What it covers
The Feed-in Tariff scheme supports small-scale renewable electricity generation, such as residential solar PV systems, by providing payments to eligible generators.
Key cost drivers
- Government support levels for eligible renewable technologies.
- The number of accredited installations.
- Overall electricity demand.
As scheme costs are spread across electricity consumption, higher national demand can reduce the cost per unit of electricity consumed.
How it is calculated
The total cost of the scheme, including generator payments and administration costs, is divided by total mainland UK electricity supply volumes.
Suppliers report scheme costs to Ofgem quarterly. Ofgem then allocates costs according to each supplier’s market share, with final annual costs confirmed after the end of the regulatory year.
Impact on bills
FiT is generally one of the smaller non-energy cost components within a business electricity bill, although costs vary depending on the scale of renewable generation supported under the scheme.