Third party costs

What are third party costs?

The prices on your energy bills are driven by both the cost of wholesale energy and Third Party Costs (TPCs). TPC’s make up approximately c.65% of total electricity costs (and c.35% for Gas) and fall into 3 broad categories Transportation, Government Schemes and Balancing.

Transportation

Transporting electricity to businesses and your homes makes up for 22-28% of the costs in your energy bill.

Government schemes

The government has introduced a number of schemes that contribute to renewable electricity generators, these contribute to 25-30% of the costs in your energy bill.

Balancing

Systems are in place to ensure electricity supply always matches demand. This contributes to around 1-2% of the costs in your energy bill.

Transporting electricity to businesses and homes

All suppliers use transmission and distribution networks to transport electricity to customer’s businesses and homes.

These charges are currently published years in advance, however the UK is moving towards more localised generation sources, such as wind and solar and changing the way electricity is consumed.

With the increasing popularity of electric vehicles, the government and regulators in the industry are looking at the how network charges should be applied.

Helping deliver CO2 reduction and green targets

The Government has introduced a number of schemes with financial incentives for renewable electricity generators in order to support renewable electricity generation and new investment in energy generation. This is then passed onto the supplier and then onto the end user.

Although some schemes are now closed for new installations, the costs of these will continue for a number of years as generators were awarded multi-year contracts. In addition, new support schemes will incentivise more low carbon generation build, as the UK moves towards its ambitious Carbon target by 2050.

Keeping Britain's lights on

There are systems in place to ensure electricity supply always matches demand and conventional generation plants are made available to cover renewable generation when the wind stops blowing or the sun stops shining. The cost of running and maintaining these systems are based on total UK energy usage and so are not known until energy has been consumed. 

Our electricity system is increasingly becoming greener, moving away from conventional centralised generation which results in difficulty predicting generation patterns, and the need for National Grid to take more actions to ensure the lights are kept on.

How have third party costs changed?

Third Party Costs (TPCs) are a significant driver behind the prices customers pay, both at home and for businesses. Historically TPCs have continued to increase and are likely to be more volatile as we move towards a greener and decentralised energy supply.

Year on year % increases

Source: Ofgem Consolidated Segmentation Statements 2018 (combined Gas and Electricity)

  • 2014
    15%
  • 2015
    6%
  • 2016
    11%
  • 2017
    8%
  • 2018
    18%