Non-commodity costs are indexed to inflation, to ensure network owner or generators’ income increases to reflect any increases in inflation.
The recent increases in Feed in Tariff (FiT), Renewable Obligation (RO) and Contracts for Difference for 2022/23 reflect a higher rate of inflation than historic forecasts.
The FiT prices paid to generators are adjusted by Ofgem each year using the (Retail Price Index) RPI rate published in January before the start of the financial year in April.
The Renewable Obligation Buy Out Price for supplier payments and Renewables Obligation Certificates (ROCs) paid to generators are determined each year using the calendar average of RPI.
CFD Obligation uses a complex CPI adjustment that also factors in BSUoS (Balancing Services Use of System charges) rates and network losses, which is applied to each generator’s agreed payment prices each year – resulting in an increase in expected prices for 2022/23.
Network Costs – Electricity and gas network owners use a blend of CPiH (CPI + Housing costs) and RPI to adjust their yearly allowed revenue collections.
Alongside a rising and fluctuating commodity market, the increases in non-commodity costs create an extremely challenging environment for suppliers and customers alike, which means that in the short term we are all going to have to pay more.
To find out more information on this, check out our business insights page to explore the energy crisis and the effect it is having on businesses.