Non-Commodity Costs Explained

Guide

SSE Guide NCC Explained Page 1

Business Energy: how the costs add up

Energy

NCCs

NCCs

45%

Energy64%

Typical standard Quarterly Single Rate customer supply (October 2017)

Typical customer Gas supply with an AQ up to 300,000kWh can expect 40% of their bill to be NCC and 60% commodity.

Energy - 45%

Transmission - 9%Distribution - 19%

Gov. Schemes- 21%

Overheads - 2% Metering - 1%

MarketParticipation- 3%

Energy - 60%

*Overheads - 9%

Transportation - 31%

(DUoS)

(BSUoS)

(TNUoS)

55%

36%

Whichever supplier you choose, the overall cost of the energy you purchase includes the electricity or gas itself; transmission and distribution costs; and charges associated with government schemes and levies.

The last two are known as Non-Commodity Costs or NCCs, and these obligatory third-party charges currently account for more than 50% of electricity and nearly 40% of gas bills for business consumers.

Secure, reliable, sustainable

It’s in everyone’s interests that the UK’s electricity infrastructure is well-maintained and energy is available even when demand is at its very highest.

The job of running and maintaining the network is carried out by transmission and distribution companies, and the costs are recovered via business and household energy bills.

The UK government is also keen to encourage energy efficiency, support renewable energy generation, and meet carbon reduction targets. The cost of these measures also impacts on the overall cost of the energy we supply.

SSE Guide NCC Explained Page 2

How NCCs have been changing

Most NCCs are charged at fixed rates according to your consumption. So when wholesale energy prices rise, they make up a smaller proportion of your invoice. When energy prices drop, the reverse happens.

NCCs themselves can also rise over time, making their contribution more noticeable.

Network and distribution NCCs have increased substantially in recent years, but the cost of government schemes and levies is rising much faster.

This is mostly due to the expansion of carbon reduction and energy efficiency measures.

Do the costs change?

Costs may increase during the lifespan of your contract. See the graph opposite for examples.

Do I have a choice?

The charges, levies and schemes themselves are mandatory, but there are still effective cost control measures you can take, depending on your usage profile and your appetite for risk. These including reducing your consumption at peak times, and talking to your SSE Business Energy advisor about fixed price contracts and combined fixed and flexible pricing.

Wholesale Non-commodity charges

140

120

100

80

60

40

20

0

200

2/0

3

200

3/0

4

200

4/0

5

200

5/0

6

200

6/0

7

200

7/0

8

200

8/0

9

200

9/1

0

2010

/11

2011

/12

2012

/13

2013

/14

2014

/15

2015

/16

2016

/17

£/M

Wh

Overall UK electricity costs over time

SSE Guide NCC Explained Page 3

Electricity – detailed breakdown

Typical Standard Quarterly Single Rate customer supply (October 2017)

NCCs at a glance

Government schemes and incentives

RO: Renewables Obligation

FiTs: Feed in Tariff

CfD: Contract for Difference

CM: Capacity Mechanism

Network and distribution

TNUoS – transmission network

DUoS – distribution costs

BSUoS – balancing and settlement

Energy - 42%

Shape - 3%

TNUoS - 9%

DUoS - 19%

BSUoS - 3%(Balancing & Settlement)

(Distribution)

(Transmission)

(Part of Energy Cost)

RO - 14%

FiTs - 4%CfD - 1%

CM <2% Overheads - 2%Metering - 1%

We hope this helps explain thevarious non-commodity costsAt SSE we work hard to be help businesses make the most of their energy. We know it can be complex, but we believe it’s an asset worth understanding. We hope this guide was useful.

ssebusinessenergy.co.uk

SSE Business Energy is a trading name of SSE Energy Supply Limited Registered in England & Wales No. 03757502 which is a member of the SSE Group The Registered Offi ce of SSE Energy Supply Limited is No. 1 Forbury Place 43 Forbury Road Reading RG1 3JH