Third-party costs reach record high: Businesses brace for sky-high energy bills

Charges such as Renewables Obligation, Balancing Services Use of Systems and Distribution Use of Systems are set to rise in the coming year, according to a new report

UK businesses are bracing for a surge in energy bills as third-party costs (TPCs) soar to an unprecedented high.

That’s according to a new report by Drax, which suggests that these costs are all likely to rise this year.

TPCs are a major concern for businesses, as they now make up almost 40% of their total energy bills.

This surge in TPCs has been attributed to a slew of underlying charges, including Renewables Obligation (RO), Balancing Services Use of Systems (BSUoS), and Distribution Use of Systems (DUoS), which are all set to increase in the upcoming year.

These charges are being driven up by inflation and greater market volatility, posing a significant challenge for companies struggling to balance their budgets amidst rising energy costs.

According to Drax, the cost of balancing the energy system has experienced a significant surge in the past year.

As per the forecasts of the National Grid Electricity System Operator (NGESO), total costs for the 2022/23 period are expected to reach £4.7 billion, up from £3.5 billion in the previous year.

The rise in market prices and tighter system margins have contributed significantly to this increase in NGESO’s balancing actions, with the operator having paid prices of £3,000/MWh and more for certain Half-Hour periods.

Drax has also projected that the 2022/23 period will end at a rate of £9.75/MWh, compared to the previous year’s £7.01/MWh.

The energy industry saw some notable developments in February, with both the Capacity Market (CM) auctions taking place during the month.

The T-1 auction, which is focused on procuring capacity for delivery during the winter of 2023, secured 5.8GW of capacity at a rate of £60/kW – this marks the second-highest T-1 auction outcome to date, experts have said.

The T-4 auction focused on procuring capacity for delivery during the winter of 2026 cleared at a rate of £63/kW – the report suggests that this is a significant increase compared to previous T-4 auction outcomes, with the clearing price more than doubling the previous record of £30.59/kW.

Drax’s Sales Director, Paul Miller, has commented on the recently published report regarding the high cost of TPCs in the energy market.

Mr Miller said: “Just like wholesale energy prices, TPCs are sensitive to what’s happening in the market and can rise and fall considerably each year.

“Our “Spring 2023 Third Party Cost Guide” found that many of the underlying charges such as RO, BSUoS and DUoS are all going to rise this year, largely due to inflation and increased volatility within the market.”

Make sure you check out the latest Net Hero Podcast episode:

Latest Podcast