Hidden Costs in Business Energy Contracts

Energy contracts can be deceptively simple on the surface. But dig a little deeper and what looks like a straightforward price per kilowatt-hour quickly turns into a tangled web of charges, levies and schemes that most procurement teams don’t get full visibility on until it’s too late.

As we move towards a future shaped more by policy and infrastructure costs than pure market pricing, understanding the hidden layers of your energy agreement is no longer a nice-to-have, it’s essential for protecting budgets and building resilient long-term strategies.

A Softening Market with Hidden Risks

As we head into winter 2025, wholesale electricity prices have dropped to around £82/MWh, a 23% reduction since February. The reasons? Milder weather forecasts, steady global LNG supply and falling oil-linked generation costs.

However, procurement teams should be wary of assuming these price reductions equal cheaper energy bills. Wholesale costs now account for just 36% of the delivered electricity price, meaning over 60% comes from non-commodity charges.

Even as market conditions ease, these structural costs continue to rise and will dominate your contract over the next five years.

What’s Actually on Your Bill

For 2025–26, the average delivered electricity cost is estimated at £225.50/MWh. Here’s how it breaks down:

By 2027–28, this is projected to climb to around £250/MWh, largely due to increasing network and policy-related costs.

1. Nuclear RAB Levy
Since November 2025, the Nuclear Regulated Asset Base (RAB) levy has added about £3.46/MWh to business electricity bills. It’s forecasted to stay between £3.50–£4.50/MWh into 2026.

This cost helps fund new nuclear infrastructure, spreading the financial burden across all energy users. While predictable, it introduces a baseline uplift in energy costs, independent of market price movements.

2. TNUoS Transmission Charges
From 2026–27, Transmission Network Use of System (TNUoS) charges will rise steeply. For a standard low-voltage business, this could mean going from £2,500 to over £5,300/year, with potential increases to £9,000 by 2030–31.

This structural change, driven by Ofgem’s RIIO-ET3 framework, reflects the investment required to upgrade the grid to accommodate higher volumes of renewable generation.

3. Policy and Scheme Shifts

Several government and regulatory changes are now shaping business energy costs:

• Energy-Intensive Industry (EII) Rebates have increased from 60% to 90%, providing relief for sectors like steel, cement and chemicals.
• The British Industrial Competitiveness Scheme (BICS), launching in 2027, will provide targeted support to offset rising network costs for heavy industry.
• The Review of Electricity Market Arrangements (REMA) confirms the UK will retain a national pricing model, avoiding zonal pricing for now.
• A mandated TNUoS redesign by 2029 could redistribute costs across regions - good news for some, more cost for others.
• Ofgem’s System Cost Allocation Review may also rebalance charges between domestic and non-domestic users.

These changes offer some upside, but mostly for large industrial users. For most businesses, the trend points to higher structural charges over time.

4. Long-Term Schemes on the Horizon

Beyond 2027, new schemes like Carbon Capture Utilisation and Storage (CCUS), the Dispatchable Power Agreement (DPA), and the maturing BICS programme will reshape the market further.

These policies add complexity and potential opportunities for businesses who understand how to leverage them. They’ll also introduce new mechanisms for cost redistribution and investment risk-sharing across the supply chain.

The Market Outlook - What You Need To Know

Short-term (2025–26):

• Easing wholesale prices offer some relief.
• Volatility risk remains from weather and global events.

Medium-term (2026–27):

• Rising TNUoS and Capacity Market costs take hold.
• Delivered electricity costs rise even if wholesale prices remain flat.

Long-term (2027+):

• New regulatory schemes and reform programmes come online.
• The market becomes increasingly shaped by structural charges and policy design.

Strategic Response

The role of procurement is shifting. Energy contracts aren’t just a cost to be minimised, they’re a strategic lever for managing risk, ensuring compliance and enabling sustainable investment.

Here’s how to stay ahead:

• Go beyond p/kWh and model total delivered cost, including future increases.
• Factor in RAB, TNUoS and other levies as fixed components in budget forecasts.
• Stay proactive in understanding when and how schemes like BICS or TNUoS reform might affect your costs.
• Leverage platforms like True to benchmark, forecast and validate contract options using live procurement and emissions data.
• Explore onsite generation, storage, and demand-side flexibility to reduce exposure to network and peak charges.
• Long-term contracts can provide budget certainty, but must be evaluated in light of non-commodity charges.

Why This Matters and Why Now

The energy contract you sign today shapes your costs for years to come. But the market you're buying into is fundamentally different to what it was just a few years ago. It's more complex, more regulated and more volatile.

So, what’s at stake?

• You could lock in a great unit rate and still blow your budget if you ignore the structural costs buried deeper in your bill.
• You could commit to a long-term deal that looks smart on day one, but turns out expensive once TNUoS charges double.
• You could delay action on on-site generation or flexibility and pay the price when network costs surge and support schemes pass you by.
• You could wait until policy changes land and find yourself on the wrong side of cost redistribution.

The organisations that get ahead of these changes will protect their margins, improve resilience and free up capital to invest in decarbonisation.

Those that don’t? They’ll be caught out by costs they never saw coming.

What to Do Next

• Review your current energy contracts to understand the level of cost certainty they provide, identify which elements can be adjusted and note renewal timelines, especially as new charges will come into effect at that point.
  
• Review your agreed capacity charges and supplier network charges to confirm they are correctly applied, optimised for your operations and include scope for adjustment as your needs change.
• Run forecasts using full cost modelling. Not just p/kWh, but all levies, network charges and expected changes.
• Explore mitigation strategies. On-site generation, storage, flexible demand, or alternative procurement routes.
• Speak to our experts who live and breathe this complexity and can help you turn risk into opportunity.

At True Group, we’ve built the tools to help you see around corners and the team to help you act with confidence.

Let’s make your next energy decision one that strengthens your business for the long run.