How the cost of your energy is made up: a comprehensive breakdown

Written by
Jani Moran
Published on
October 11, 2024

While wholesale energy prices receive the most attention, they represent only a fraction of the total costs passed on to the end user. Even if wholesale prices experience temporary dips, other components of the final bill—such as taxes, levies, and distribution costs—are likely to remain high or even increase over time. Partnering with Sustain Commercial Solar can help mitigate these costs by investing in solar solutions that reduce grid dependency. Here’s why the overall energy cost will continue to be substantial for the end consumer:

1. Wholesale prices are just one part of the equation

Wholesale prices account for only 40-60% of the total energy cost, depending on the region and type of energy. The rest of the costs are made up of network charges, environmental levies, taxes, and operational costs. While wholesale energy prices can fluctuate due to supply and demand dynamics, geopolitical factors, or seasonal variations, these changes rarely translate directly into significant savings for end users.

Solution: Sustain Commercial Solar offers a way to hedge against fluctuating wholesale prices by providing on-site solar generation, allowing businesses to reduce their reliance on the grid and avoid the volatility of external energy costs.

2. Rising network and distribution costs

The cost of transmitting and distributing energy—often called "network charges"—is a significant part of the final bill. These charges are used to maintain, upgrade, and expand the energy grid to accommodate growing demand and integrate more renewable energy sources. With the push for smarter grids and infrastructure to support renewable energy and electric vehicles, these costs are expected to increase rather than decrease.

Solution: By working with Sustain Commercial Solar, businesses can produce a portion of their own energy on-site, reducing the burden of network charges and positioning themselves ahead of these cost increases.

3. Environmental levies and green energy subsidies

Levies and subsidies related to environmental goals, such as supporting renewable energy projects or funding energy efficiency initiatives, are an integral part of the energy bill. As countries strive to meet their net-zero targets, these levies are set to increase. For instance, the costs of supporting renewable energy projects (like wind and solar subsidies) will be passed on to consumers, regardless of changes in wholesale market prices.

Solution: Sustain Commercial Solar helps businesses benefit from these subsidies by making it easier to transition to on-site renewable energy, which reduces the impact of levies and positions companies as leaders in sustainability.

4. Taxes and policy-driven costs

Energy taxes, including VAT, carbon taxes, and other policy-driven charges, form a significant component of the final energy price. These taxes are often used to incentivise energy efficiency or penalise carbon emissions. Even if the wholesale cost of energy were to decrease, these policy-driven costs are unlikely to be reduced, as they serve broader fiscal and environmental policy goals.

Solution: With Sustain Commercial Solar, businesses can significantly reduce their exposure to these taxes by decreasing overall energy consumption from non-renewable sources and lowering their carbon footprint.

5. Capacity market and security of supply costs

To ensure grid stability and prevent blackouts, governments and energy providers invest in capacity markets, which ensure enough supply during peak demand periods. The costs of maintaining energy security, including capacity payments and investments in backup generation, will continue to be passed on to consumers, maintaining the overall high cost of energy.

Solution: By installing on-site solar with Sustain Commercial Solar, your business can avoid capacity market charges and gain greater energy independence, protecting against rising costs associated with energy security.

6. System costs for renewables integration

The integration of intermittent renewable sources (e.g., solar and wind) requires significant investment in grid management, storage solutions, and backup capacity. These costs, often termed "system balancing costs", are likely to grow as more renewables are added to the grid, adding further upward pressure on the final bill.

Solution: With Sustain Commercial Solar as your partner, you can create a balanced on-site energy solution, including storage options, that minimises your reliance on external grid management and associated costs.

Conclusion: wholesale prices are only part of the story

Even if wholesale energy prices were to decline temporarily, the overall cost to the consumer is unlikely to fall proportionately. The fixed costs associated with distribution, environmental policies, and taxes will continue to keep energy prices elevated.

This structure makes energy efficiency and self-generation solutions, such as solar installations, particularly attractive, as they can significantly reduce reliance on the grid and associated charges, providing a more stable and predictable cost base over the long term. Investing in solar is not just about combating rising wholesale prices—it’s about mitigating the entire spectrum of costs that make up the final energy bill.

Partnering with Sustain Commercial Solar enables your business to navigate these challenges strategically by creating a tailored renewable energy solution that lowers overall energy expenses, enhances energy security, and contributes to long-term sustainability goals. By generating power on-site, your company can gain control over rising costs and future-proof its energy strategy in a volatile market.

Ready to explore how solar can help your business reduce its total energy costs? Contact Sustain Commercial Solar today for a personalised consultation and discover the benefits of becoming more energy self-sufficient.

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Table of contents

Article written by
Jani Moran
Commercial Director
Jani Moran is the Group Commercial Director of Sustain Commercial Solar, overseeing the strategic direction of the commercial division. With a keen eye for identifying market opportunities and a strong background in sales, Jani drives revenue growth and expands the company’s market share.

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