Over the past three years, commercial electricity customers in the UK have faced a steady rise in third-party charges (TPCs). These non-energy costs, which include network charges, environmental levies, and system balancing fees, now constitute a significant portion of business energy bills. This trend has created new challenges for businesses, particularly in managing their energy budgets.
One major driver of rising TPCs is the Targeted Charging Review (TCR), introduced by Ofgem. The TCR aimed to make electricity network charges more equitable, shifting a larger portion of these costs onto fixed charges rather than usage-based charges. For commercial customers, this change has meant higher standing charges, particularly for those with lower energy consumption. While the TCR provides more predictable costs, it has reduced the financial incentives for energy efficiency or peak-load reduction, disproportionately affecting small and medium-sized enterprises.
Another factor influencing TPCs is the Capacity Market (CM), which ensures the UK has enough electricity supply to meet demand. The costs of capacity market auctions, where generators and storage providers secure payments for ensuring backup capacity, are passed onto customers. Recent years have seen higher CM costs, driven by increased investment in system resilience and a growing reliance on renewable energy sources that require backup during periods of low generation.
Looking ahead, third-party charges are expected to continue rising. The UK’s push toward net-zero carbon emissions by 2050 will require ongoing investments in renewable energy infrastructure, smart grids, and system balancing. Moreover, inflationary pressures and global energy market volatility may exacerbate these costs.
To mitigate the impact, businesses should consider implementing energy management strategies, such as on-site generation, battery storage, and demand-side response programs. By actively managing consumption and engaging with these changes, commercial electricity customers can reduce exposure to rising TPCs and position themselves for a more sustainable energy future.