Energy Bill Standing Charges: A Potential Drop, But Who Pays the Price?
The UK's energy regulator, Ofgem, is considering a shake-up of how much households pay in energy bill standing charges, potentially leading to a reduction in these fees. However, this could result in higher unit rates for gas and electricity, potentially disproportionately affecting lower-income homes.
Energy bills are made up of two parts: unit rates, which reflect the price of the gas and electricity consumed, and standing charges, daily fees payable regardless of usage. While standing charges are a source of frustration for many, as they are unavoidable, the impact of high unit rates can be mitigated by using less energy. This, however, can require significant sacrifices in terms of electricity usage and heating.
Currently, the average electricity standing charge is 60.12 pence per day, increasing to 60.99 pence with the new Ofgem price cap coming into effect on 1 October. For gas, the typical standing charge is rising from 31.41 pence to 31.66 pence.
Ofgem's proposed change involves trimming the standing charge to eliminate the portion that covers supplier operating costs, typically around £135 per year for the average household, representing 40% of the average combined gas and electricity standing charge of £330.
The regulator is considering shifting some of this cost to unit rates, which could have detrimental consequences for those on lower incomes who use more energy, such as the elderly, disabled, and larger families.
Gillian Cooper, director of energy at Citizens Advice, warned: "Reducing standing charges will slightly bring down some peopleâs bills, but it could mean households with higher electricity usage, including some families on low incomes, pay more. The Government must urgently introduce targeted bill support that reflects the realities of peopleâs energy needs and protects those at risk from standing charge reform."
Ofgem acknowledges the potential harm to low-income, high energy usage consumers: "Moving all of the operating costs from the standing charge to the unit rate could have too harmful a financial impact... It could also have potential impacts on energy supplier stability. Based on the current allowance of roughly £135, we consider that moving between £20 to £100 of operating costs from the standing charge to unit rates could be achieved."
Standing charges cover several expenses, including network costs like maintaining electricity cables, costs associated with failed energy firms, and government policy costs, as well as the smart meter rollout.
While avoiding standing charges entirely is currently difficult, there are rare energy deals with low or no standing charges, often at the expense of higher unit rates. Ofgem aims to encourage energy firms to offer more such deals to increase choice and competition. Should this not happen organically, the regulator is prepared to mandate such tariffs for both gas and electricity consumers.
Ofgem is currently seeking input from energy firms, consumers, and other stakeholders regarding standing charges. Any changes implemented would take effect from April 2025.
It remains to be seen whether Ofgem's proposed change will truly benefit consumers or exacerbate existing inequalities. Careful consideration and mitigation measures are vital to ensure a fair outcome for all, particularly for those most vulnerable to the potential rise in unit rates.
