Since the energy crisis, there has been an increased focus on how much British businesses are paying for their energy, especially their electricity. Although wholesale markets have eased from their peaks in 2022-23, delivered prices have remained stubbornly high. There is growing recognition, especially amongst trade groups and the business media, that the cause of this is structural, with non-commodity costs - the costs which sit on top of wholesale energy prices - becoming more prominent in bills amidst policy and system changes.
Wholesale prices still matter, or do they?
Wholesale costs remain the single largest component of non-domestic electricity bills, but their influence is diminishing.
For small and medium sized enterprises (SMEs), wholesale risk is typically managed by suppliers through fixed price contracts. This provides price certainty over the contract term but can expose customers to sharp step changes at renewal. Industrial and commercial (I&C) customers generally have access to more bespoke procurement options. Many opt for flexible purchasing options allowing them to spread purchasing decisions over time, rather than locking in the wholesale rate at one point.
As wholesale prices have become more manageable, changes in business energy bills are increasingly driven by non-commodity costs.
Someone still has to pay for the grid
Electricity demand is expected to grow significantly over the coming decade, requiring major investment across the transmission network. Transmission Network Use of System (TNUoS) charges recover the cost of building, maintaining and operating this system and are ultimately passed through to customers via suppliers.
While rising transmission charges under the RIIO ET3 price control were long anticipated, the scale of the increases is higher than many expected. NESO’s forecasts indicate substantial growth in the revenues that must be recovered through demand residuals, leading to significant year on year increases in transmission costs.
For many businesses, these higher costs will feed directly into electricity bills from April 2026. Cornwall Insight’s BEC forecast shows TNUoS making up an increasingly large share of the average unit rate for a domestic customer. Because these charges are largely fixed in advance, businesses have limited ability to mitigate their impact. While network investment delivers long term benefits, it creates an immediate affordability challenge for businesses already facing broader economic pressures.
Pay now, generate later
Adding to the suite of non-commodity costs is the nuclear Regulated Asset Base (RAB) levy, designed to finance new nuclear power stations. Under the RAB model, costs are frontloaded, meaning consumers begin paying before generation is operational. The intention is to provide investment certainty and reduce financing costs over the long term, ultimately lowering costs for consumers.
Costs are rising, pass it on
Rising non-commodity costs present commercial challenges for business suppliers. Unlike wholesale costs, which can be managed through hedging strategies, network charges and policy levies are set externally and largely unavoidable. Suppliers remain responsible for collecting the associated revenues and paying regulated charges.
While new levies such as nuclear RAB can usually be passed through under standard contract structures, their periodic updates introduce uncertainty for fixed price products. The much larger challenge lies in the scale of the TNUoS uplift. As this is an increase to an existing cost line, most suppliers will be unable to absorb it within already thin margins and will need to recover these costs from customers.
Higher bills, tighter margins
Rising non commodity costs are already shaping business sentiment. Research from npower Business Solutions found that 79% of businesses expect their energy invoices to rise over the next 12 months, with nearly half anticipating non commodity costs to increase by 25% or more. These pressures come at a time of weak growth and persistent inflation.
For SMEs, higher energy costs risk business closures or investment being diverted away from growth and decarbonisation. I&C businesses also face reduced international competitiveness. While the government’s British Industrial Competitiveness Scheme will provide relief for some electricity intensive manufacturers from 2027, eligibility is limited, leaving most businesses exposed.
Welcome to the non-commodity era
Business energy bills are now increasingly shaped by network and policy costs. Clear communication and preparation across the market will be essential to ensure businesses understand what is driving higher costs and to prevent further damage to confidence in the non-domestic energy market.
Looking to find out more? Join our free Business Energy Costs webinar.
On 28 January Cornwall Insight experts will be hosting an interactive session that will unpack the key recent market developments in commodity and non-commodity costs and their impacts for businesses, register here: Business Energy Costs: What’s Changed and What’s Next.
