What are third party costs on a business energy bill?
A customer’s energy bill is made up of much more than just the cost of the raw energy and supplier costs – indeed these typically make up only half of a typical energy bill.
The remainder of the bill is made up of a wide range of cost components that directly pay towards the maintenance, security and development of the energy infrastructure that is essential to delivering energy to customers’ homes and businesses.
These costs are known as third party costs (TPC) or non-commodity, or non-energy charges.
These charges can broadly be split into two categories:
1. Network charges
- These charges are levied by the network operators for the maintenance, development and balancing of the electricity and gas networks.
- The charges can be split out by distribution, transmission and balancing (electricity only) charges and are recovered via consumption-based, fixed and capacity charges.
2. Policy costs
- These are charges introduced by the government to help support and subsidise the transition towards low carbon generation and the challenges this creates.
- These include charges that encourage the development of low carbon generation (Renewable Obligation, Contract-for-Difference FiTs (both large scale generation) and Feed-in-Tariffs (small scale), as well as the Capacity Market scheme, that was set up to ensure adequate flexible generation capacity is available at times of peak demand or low supply.
Each charge varies greatly in terms of what drives the level of cost, when the charges are published and how they are recovered.
The networks are closely regulated by Ofgem and as such there is much more transparency around how they are calculated and more notice and certainty around publication of final rates.
Whereas with policy costs depending on the mechanisms involved the final rate may not been fully known till after the charging year is over.
Subsequently for fixed price contracts, depending on the start date and duration of a contract, a large proportion of your non-commodity charges can be based on rates forecasted by the supplier.
Typical bill breakdown
Future movements of third party costs
Due to the complex and varied way in which third party charges recovered and forecasted by the respective industry bodies, the level of charge can move significantly from year to year, with charges generally increasing but not always.
From an electricity consumer’s perspective, anyone renewing the electricity contracts in 2025 will see a notable drop in the standing charge costs, mainly due to a significant drop in fixed network charges from 2024 (some up to 50% reductions).
Conversely, consumption-based charges are expected to increase notably from 2025. Partly driven by inflationary drivers, and for network charges, partly driven by a re-allocation of some costs away from standing charges and back into unit rates and capacity charges.
Gas third party costs
As the axis above shows, gas third party charges typically make up only 3-10% of a gas unit rate. Commodity costs making up the lion’s share of customers’ unit rates.
The majority of third party charges, in the form of network capacity charges and metering costs, reside in a customer’s standing charge.
Typically, gas third party charge movements are much more sedate than their electricity cousins, though it is important to note that network charges can increase significantly if the nature of a site’s consumption changes.
The most volatile third party charge for gas is the “Unidentified Gas charge”, which is a cost smeared across all suppliers for gas that is effectively lost in the system after leaving the transmission network. To name a few reasons this could be due to theft or unregistered sites, etc. With commodity prices increasing significantly in 2025, that has driven a notable increase in the level of unidentified gas in unit rates.Read more in How billing works
Recent changes in third party costs
Whilst there are no seismic changes expected in the world of third party costs in 2025, there have been some developments which end consumers may want to be aware of.
New third party charges
In 2025, the Nuclear RAB levy is expected to be introduced. The exact timing and amount are still to be confirmed. This levy will apply to all non-Energy Intensive Industries (EII) electricity consumers, but it is anticipated to have a minimal impact on consumer bills, with rough forecasts predicting it will be under £0.50 per MWh.
Energy Intensive Industry (EII) cost exemptions
2024 saw increased third party cost exemptions, linked to the government’s Energy Industry Supercharger scheme, come into effect.
The most recent development took place in October 2024, with 100% exemption from the Capacity Market charge for EII consumers kicking in.
If you are an Energy Intensive Industries, or you think you might be, and you’re not sure if you’re set up to benefit from these exemptions, please contact your supplier to find out more.
Targeted Charging Review (TCR) band review
Following a review by the electricity networks, April 2026 will see over 1m non-domestic meters change TCR band (the band networks use to determine a meter’s fixed/standing charge costs).
Just over half of these meters will be dropping into less expensive bands, but the rest will be increasing in cost – if you want to know if any of your meters are changing band, the networks have provided suppliers with a list of all affected meters so you can contact your supplier to find out.
The best way to ensure that your electricity prices reflect these changes is to either aim for an April 2026 renewal date. Or request a product that passes through network charges where available.
BSUoS modifications
Two modifications for the Balancing Service Use of System (BSUoS) have been approved by Ofgem.
1. CMP 408
Reducing the notice period for final rates from 9 months to 3 months.
2. CMP 415
Increasing the length of the fixed price period from 6 months to 12 months.
Whilst these changes will not directly impact customers, they do theoretically increase forecasting risk for suppliers, potentially resulting in extra risk premiums being factored into prices. The best way to avoid these is to ask for a BSUoS pass-through product from your supplier.
Summary
In 2025, electricity consumers will see a drop in standing charges but an increase in consumption-based charges. Gas third-party charges remain stable, though the “Unidentified Gas charge” can be volatile. New charges like the Nuclear RAB levy will be introduced, and exemptions for Energy Intensive Industries will continue to evolve.
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