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What Are Third-Party Costs?

Navigating business energy billing can be an extremely tiring task, especially if you come across terms like ‘third-party costs.’ Despite how common these costs actually are, not many people know about them. But there’s nothing to fear. Here’s a comprehensive look at third-party costs.

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Everything You Need to Know About Third-Party Costs

Third-party costs, which are also known as ‘non-commodity costs,’ are extra charges included on your energy bill. This is a payment that energy suppliers make to various entities and the government to deliver energy to your home.

Third-party costs cover things like investing in future electricity generation, environmental charges, and network maintenance. These costs have increased significantly over the years, becoming a much larger part of energy bills. So, it’s important to understand them and how they can impact your business energy costs overall.

What is the Purpose of Third-Party Costs?

Third-party costs serve many different purposes. Let’s break down the main ones:

1. Covering supplier operational costs

Much like any other business, energy suppliers are in the business of making money. This is why they have customers pay some additional costs associated with their supply and services. Customers end up paying these costs. Supplier costs can change according to factors like the implementation of new technology and market conditions.

2. Maintaining and improving the energy network

A significant amount of third-party is paid towards the maintenance of the energy network. The energy network primarily refers to the transmission system and the distribution system. These costs basically ensure that the network is well looked after so that it can continually deliver energy to homes and companies.

3. Supporting renewable energy projects and reducing emissions

Third-party costs have a role in supporting sustainability initiatives. With third-party costs, businesses in particular are encouraged to change their energy practices. This then helps the UK transition to a more sustainable energy future.

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Network charges

Charges for using the electricity network to deliver power to your home or business. Network charges are further divided into two types:

  • Distribution costs – Fees for delivering electricity from the local network to a property. Effectively the local roads that bring power to your doorstep.
  • Transmission costs – Costs paid for moving electricity from power stations to local distribution networks.

Supplier charges

An additional cost that a supplier will make you pay to cover their own expenses. Primary examples would be customer services, billing, and profit margin.

Climate Change Levy

This is a tax on the use of UK business energy. It was introduced as a way of encouraging businesses to be energy efficient and reduce emissions.

Environmental charges

These third-party costs are related to supporting the use of renewable energy products. Here are further examples:

  • Feed-in Tariff (FiT) – A charge to encourage homes and businesses to generate their own renewable energy. It’s currently closed to new entrants but will continue to be charged for a number of years.
  • Renewables Obligation (RO) – This charge was created to support large renewable energy projects. Much like the feed-in tariff (FIT), the RO is also closed to new entrants.
  • Contracts for Difference (CfD) – CfDs support investment into low-carbon electricity generation. It was effectively created to replace the RO.

Remember, third-party costs in general are not directly controlled by an energy supplier.

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How to Reduce Third-Party Energy Costs

Reducing third-party costs may seem like a tall order but it is possible. Here are some ways that could help:

Manage your load

If your business isn’t limited in this regard, adjust its energy usage during peak hours. You could be able to avoid charges related to peak time usage.

Be energy efficient

It’s simple, the less energy you use, the less you’ll be charged on your energy bill. Take a look at your business utilities and see what can be made more energy efficient. Changing your energy practices could start with easy steps like ensuring lights are turned off or switching to energy-efficient appliances. Because the UK has a typically cold climate, you should also consider insulating your premises.

This could also imply changing the nature of your services. Even the smallest of aspects matter and could make a huge difference.

Watch the time you use

Some costs, like Distribution Use of System (DUoS) charges, change according to the time of day. When possible, try using more energy during off-peak hours, as this is when it’ll likely cost less. You could also consider adjusting your opening and closing times accordingly.

Change the type of contract you’re on

At some point, you need to determine whether a fixed or variable account is better for your company to be on. Fixed contracts, for example, usually include third-party costs in the rates. This could be beneficial for planning the allocation of your financial resources. Each has its pros and cons, so this is something worth discussing with a supplier or consultant.

Remember that every business is unique, so you have to find a strategy that suits you.

Find Out More With Business Energy Comparison

As we said, trying to understand all the business energy terms and concepts out there can be hard. But, it doesn’t have to be. Business Energy Comparison can simplify all of this for you.

We break down complex topics like third-party costs, and much more, in a way that’s easy to understand, no matter the industry you’re in and the nature of your services. The result? You’ll be able to make informed company decisions and keep your operations afloat.

Our comparison tools let you compare business gas and business electricity prices from top suppliers, to help you pay less. We also have many resources on various energy topics to empower you, so that you can manage your business energy costs effectively. So, whether you’re an SME or a large business, start exploring Business Energy Comparison today and take control of your energy costs.

Start your journey and compare business gas and electricity rates with Business Energy Comparison today. Use our price comparison tool and in less time than it takes to make a brew, we’ll compile your best prices from the UK’ s best suppliers.

Frequently Asked Questions

What is considered a third party?

A third party is a person or company that you do business with. This could be someone who sells you something you need or does tasks for you that you can’t or don’t want to do yourself. It can also be an entity that helps you reach more customers or get new products.

When could third-party costs change?

This could happen when, for example, the cost of maintaining the energy network becomes more expensive. These costs are changed by a number of factors but you’ll typically see significant changes taking place on an annual basis.

What are the components of an energy bill?

An energy bill is made of three main parts:

  1. Third-party costs.
  2. A supplier’s additional charges related to services rendered.
  3. The cost of the energy you’ve used.

What is the Electricity Market Reform (EMR)?

The Electricity Market Reform is a policy that has been implemented by the UK government. It aims to encourage investment in low-carbon energy initiatives and improve the stability of the UK’s energy supply. It also aims to make electricity more affordable for customers.

With it, new ways to fund the development of clean energy supplies have been introduced.

Can I dispute third-party costs on my energy bill?

You generally can’t dispute third-party energy costs on your bill. But, if you feel there’s a mistake, you should get in touch with your supplier or a business energy consultant.