Business energy network costs explained!
Network charges refer to the cost of building, operating and maintaining the energy distribution networks that deliver electricity and gas to businesses across Britain.
Business energy suppliers incur network costs as they transport the electricity and gas from where its generated, produced or imported to your property.
This guide will look at what’s included in network costs.
What are business energy network costs?
The distribution network for electricity and gas work quite differently; let’s look at what’s involved in each:
Gas network costs
Natural gas enters the British network through three undersea pipelines when imported from the European market or from the North Sea gas fields.
Several different gas transporters operate the British gas network. Gas transporters are a natural monopoly, so Ofgem heavily regulates the amount they can charge. The network charges are set annually and published by each transporter. The gas network costs are composed of:
- Commodity charges – A charge per kWh of gas delivered through the network
- Capacity charges – A charge based upon the peak flow of gas required.
- Fixed costs: Standing charges for continued use of the network.
Electricity network costs
Electricity enters the British network from generators, with the most prominent sources coming from:
- Wind Energy – Both onshore and offshore wind farms
- Nuclear Energy – Nuclear Power plants across the UK
- Gas-fired power plants – Plants converting natural gas to electricity across the country
- Interconnectors – Undersea cables from the European continent and Ireland.
The electricity distribution network has three layers:
- The national grid – The high voltage network connecting the regional networks
- Distribution network operators – Six regional network operators
- Independent distribution network operators – Local smaller networks
Each separate network levies a standing charge and unit rate for business energy suppliers using the networks. These distribution costs are included within business electricity rates on offer in the market.
Separately business energy suppliers incur system charges. System charges are the cost of managing the entire electricity network to ensure a balance between generators and users. System operators ensure enough electricity in the grid to meet demand and avoid blackouts.
Are business energy network costs going up?
Unlike wholesale energy costs, energy network costs are stable.
The cost of expanding, operating and maintaining British energy infrastructure increases yearly with inflation. All network costs are published annually by each component of the energy distribution networks.
In Ofgem’s plan for 2028, it intends to improve the efficiency of network operators to reduce network costs incurred by consumers.
How do energy network costs affect my bill?
When business energy suppliers provide quotes, they consider that they will need to pay network costs during your contract.
Only in a pass-through business energy tariff will your supplier directly charge you for network costs they’ve incurred. This tariff will separate network and wholesale costs on your business energy bill.
Network costs depend on where your property is located. That’s why we will always ask for the address of your property in our business energy comparison service. Request quotes tailored to your business today: