Third Party Energy Charges Q&A

What are the ‘Third Party’ or ‘Non-commodity Charges’?

The Feed-In Tariff scheme (FiT) and Renewables Obligation (RO) are Government schemes, the cost of which is passed down to the consumer through the supplier.

Transmission Network Use of System (TNUoS) and Distribution Use of System (DUoS) are charges made by the national Grid and Distribution Network Operators (DNOs).

Saffron Business Solutions refer to all of these as ‘Non Commodity Charges’ (NCCs).

The Climate Change Levy (CCL) is a tax specified by HM Revenue and Customers annually, and this is increasing from 0.559p/kwh to 0.568p/kwh from 1 st April 2017.

What are FiT and RO?

The UK currently sources around 20% of electricity from renewable generation, current Government targets mean that this is likely to increase to around 30% by 2020.

In order to meet these targets, the Government developed a number of incentive schemes to encourage energy production. These are as follows:

  • The Renewables Obligation (RO), which was introduced in 2002 as the Government’s primary support mechanism for large-scale renewable electricity generated in the UK; and,
  • The Feed in Tariff (FiT) scheme, which was introduced in April 2010, predominantly for smaller generators.

Whether a renewable generation project is eligible for incentives under the RO or FiT regime will depend on the size and type of scheme and when in receives or received accreditation.

Renewables Obligation (RO)

The RO places an obligation on licensed suppliers to source an increasing percentage, year on year, of electricity from renewable generation. In any year, this percentage is the same for all suppliers and is announced at the beginning of October in the year prior.

Suppliers demonstrate compliance with this obligation by purchasing Renewable Obligation Certificates (ROCs). These ROCs are awarded to eligible renewables generators, who receive a specified number of them.

For each MWh of electricity they generate (the number of ROCs/MWh depends on the type of renewable source). If suppliers don’t purchase sufficient ROCs then they have to pay an amount for their shortfall based on the so-called “Buy-Out- Price” which is published by Ofgem in February each year for the following fiscal year.

Feed-In Tariff (FiT)

The FiT scheme works alongside the RO and is designed to incentivise businesses and individuals to install small-scale (less than 5MW) renewable electricity generating technologies by guaranteeing a minimum payment for the electricity generated as well as the electricity exported to grid. One example of this would be solar PV panels.

The costs of the FiT scheme are spread across all suppliers (this includes generation payments and allowable administration costs). There has been extensive publication around the take-up of solar power which has exceeded all expectations. This has led to large increased in the cost of the FiT scheme. For more detailed information visit:

https://www.ofgem.gov.uk/environmental-programmes

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