For many businesses, energy bills feel overly complicated. You agree a unit rate, sign a contract, and assume that’s the cost. But behind every kilowatt hour sits a layered system of wholesale markets, network charges, government levies and regulatory costs.
Understanding what actually makes up your bill gives you clarity and understanding — especially in a market that continues to evolve as the UK transitions toward net zero.
The Wholesale Market: Where It All Begins
At the core of your energy contract is the wholesale price. This is what suppliers pay to purchase electricity or gas from generators and traders.
Wholesale prices move constantly. They respond to global gas markets, weather patterns, demand levels, geopolitical events and the availability of generation capacity. When wholesale prices rise sharply, contract prices follow. When markets fall, the benefit depends on when and how your energy was secured.
However, wholesale energy is only one part of the overall cost.
Paying to Use the Grid
Electricity doesn’t just arrive at your premises. It travels through a national transmission system and then through local distribution networks before it reaches your site. Maintaining that infrastructure comes at a cost.
Distribution Use of System (DUoS) charges cover the local networks — the cables, substations and regional infrastructure that deliver electricity directly to businesses. These charges vary by location and can also change depending on the time of day energy is used.
Balancing Services Use of System (BSUoS) relates to the cost of keeping supply and demand in balance across the national grid in real time. As more renewable generation enters the system, balancing becomes increasingly important.
There are also transmission charges that fund the high-voltage network transporting electricity across the country. These costs are often built into supplier pricing but remain a significant part of the overall bill.
Government Policy and Environmental Levies
The UK energy system includes several schemes designed to support decarbonisation and long-term energy security. While these policies drive investment in renewable generation and system resilience, they also form part of business energy costs.
The Climate Change Levy (CCL) is a government tax applied to business energy consumption to encourage efficiency. Some organisations can reduce this cost through Climate Change Agreements.
The Renewables Obligation supports large-scale renewable generators. Suppliers are required to purchase renewable certificates or pay a buyout fee, and that cost is passed through to end users.
Contracts for Difference (CfD) help stabilise revenue for low-carbon generators by guaranteeing a set price for electricity. If market prices fall below agreed levels, suppliers contribute to top-up payments.
The Capacity Market ensures there is sufficient generation available during peak demand periods. Generators are paid to remain on standby, and those costs are recovered from suppliers and ultimately from customers.
These schemes are often small individually, but together they represent a meaningful portion of total energy spend.
Industry Administration and Market Services
How Business Energy Tariffs Work
The way your contract is structured determines how these various costs are handled.
With a fixed tariff, your unit rate is locked in for an agreed period. This provides budget certainty and protection against wholesale spikes, but it may limit flexibility if market prices fall.
A flexible or pass-through contract separates the wholesale element from certain third-party charges. Network and policy costs are passed through at their actual value. This offers greater transparency but introduces some variability.
Deemed or out-of-contract rates apply when a formal agreement is not in place. These are typically far higher than negotiated contracts and can significantly increase overall costs.
Choosing the right structure depends on your appetite for risk, cash flow planning and long-term strategy.
Why Costs Change Each Year
Even if your consumption remains stable, your bill may change. Network charges are updated annually. Policy costs are recalculated. Grid investment increases as the UK modernises infrastructure. The transition to renewable generation also reshapes balancing requirements and capacity costs.
This is why two businesses with similar usage can face different pricing outcomes, and why reviewing contracts regularly is essential.
Understanding Leads to Smarter Energy Strategy
Business energy pricing is not simply about securing the lowest unit rate. It’s about understanding what drives cost, how charges are structured and where opportunities for optimisation exist.
For businesses navigating rising costs, sustainability targets and long-term procurement decisions, clarity is critical. The more informed you are about how your bill is built, the better positioned you are to manage it strategically rather than reactively.
At Renewable Energy Solutions, we review your invoices in detail, break down every component and ensure your business is only paying what it should — no more, no less.
If you would like a clearer understanding of your current energy costs, speak to our team about a bill validation review.
