Regulatory change is reshaping non-commodity costs: what businesses need to know

The UK energy market is entering another period of significant regulatory change and for businesses, the impact is already being felt through non-commodity costs. While these costs have always been influenced by policy, the scale and pace of current developments mean regulation is now a primary driver of how electricity bills are evolving.

A rapidly evolving regulatory landscape

Across both the UK and EU, a broad set of regulatory changes is underway. Recent developments include:

• The energy price cap increasing by 13% for Q3 2026
• Ongoing grid connection reform, with further changes expected through 2026 and beyond
• The introduction of REMIT II reporting requirements, with additional obligations due in the coming years
• The Carbon Border Adjustment Mechanism (CBAM) entering its definitive phase
• Continued progress on Reformed National Pricing (REMA), with structural reforms planned from 2027

While these changes may appear distinct, they are interconnected and all contribute to how non-commodity costs are structured and recovered.

Policy priorities are feeding through into costs

At a strategic level, regulatory focus remains firmly on affordability, network reform, and delivering the UK’s clean power ambitions. These priorities are driving major changes in how the energy system is funded. For example:

• Increased network investment to support clean power targets is feeding directly into network charges
• Evolving policy mechanisms are reshaping levies and cost recovery models
• Market reforms are influencing how costs are distributed across different types of users

In short, the policy direction is clear, but the cost impacts are still unfolding. For businesses, this creates greater uncertainty in forecasting energy costs and reinforces the need to stay close to regulatory developments.

Clean power and infrastructure investment are key drivers

The transition to a low-carbon system remains central to regulatory change. Key developments include:

• The gradual closure of legacy schemes such as the Renewable Obligation (RO)
• Accelerated efforts to improve grid connections and system planning
• Ongoing reforms to support new generation and infrastructure investment

These changes require significant capital investment, which is ultimately recovered through non-commodity costs, particularly through transmission and distribution charges, as well as policy levies. As a result, businesses should expect network-related costs to play a growing role in overall electricity spend over the coming years.

Compliance and reporting requirements are expanding

Alongside structural reform, compliance obligations are becoming more complex and more frequent. Businesses are now navigating:

• Expanded REMIT II reporting requirements, with further obligations planned
• New and evolving requirements across emerging areas such as hydrogen
• Ongoing schemes such as ESOS, including annual progress reporting
• Increased regulatory scrutiny of market participants, including third-party intermediaries

While these are primarily compliance-driven changes, they also contribute indirectly to non-commodity costs, through both administrative burden and the design of market mechanisms.

Ongoing reform will continue to drive cost volatility

Looking ahead, there is a substantial pipeline of consultations and reforms still in progress. These include:

• Changes to Capacity Market rules
• Consultations on licensing, consumer outcomes and DUoS reform
• Further work to accelerate network connections
• Reforms to prioritise projects based on system need rather than queue position

Each of these has the potential to influence how non-commodity costs evolve, either directly through charging structures or indirectly through system-wide changes.

What this means for non-commodity costs

The cumulative effect of these developments is clear, non-commodity costs are becoming more:

For businesses, this means costs are no longer driven solely by demand or wholesale prices. Instead, they reflect a combination of regulatory intent, infrastructure investment and evolving market design.

Key takeaway

Regulation is now at the centre of the non-commodity cost landscape. While the direction of policy is focused on delivering a more secure, sustainable and affordable energy system, the pathway to achieving this is complex and the costs are still evolving.

For businesses, the challenge is not just to react to changes, but to anticipate them, ensuring energy strategies remain resilient as regulation continues to evolve.