New proposals introduced by Ofgem on Thursday 12th December could mean energy suppliers will have to offer tariffs with low or no standing charges.
What Are Standing Charges?
A standing charge is the daily fee that is charged by your energy provider for you staying connected to the gas grid or electricity network. Regardless of how much energy you use, you pay this standing charge, as it is the cost of having access to energy, not the cost of using it.
For more explanations of key terms that often crop up when discussing energy bills, click here.
Ofgem’s Proposal for Standing Charges
Ofgem’s new proposals could mean energy suppliers will have to offer consumers tariffs with low or no standing charges. These options would have higher unit rates, but would benefit those with low energy usage, who at the moment are paying the same standing charge as everyone else, regardless of how little energy they actually use. This could lead to more consumer choice, with customers having more ability to choose an option that best suits them.
When calling for input on standing charges, Ofgem received responses from tens of thousands of customers. Many of these requested that standing charges be removed entirely, saying that reducing or removing standing charges would make it easier for them to manage their bills or pay back debt.
Why Not Remove Standing Charges Entirely?
Ofgem found that if standing charges were removed by all, it could have a negative impact on very vulnerable consumers who are high users of energy due to medical and health needs.
This is because if the fixed costs that are currently covered by standing charges were to be moved to unit rates, they would see a significant rise to their bills. Essentially, if there is no standing charge, the unit rate will have to be higher.
Therefore, it is important that consumers can make a choice based on their own circumstances, rather than standing charges being removed for everyone.
“The best outcome would be to slash standing charges within the Price Cap, yet as that’d mean the cost of each unit of energy would need to increase, it’d require the Government to put in special support for vulnerable high energy users – such as those charging electric wheelchairs, or those with illnesses that require a very warm home. That hasn’t happened (yet?).
Instead, I’m pleased its alternative path follows our submission suggestion of a dual Price Cap, one as now, a ‘higher standing charge, lower unit rate’, and a new ‘no standing charge, higher unit rate’ version that’ll benefit lower users.” – Martin Lewis, founder of MoneySavingExpert.com.
Energy Bill Debt
As well as proposals around standing charges, Ofgem has also announced proposals to tackle energy bill debt that was built up during the energy crisis. These debt arrears reached £3.82 billion in September 2024, acting as a 91% increase in two years.
It is currently unclear what their solution will be to help tackle this, but they have said that:
“The level of debt built up during that period has become unsustainable, and requires a bespoke, one-off solution to tackle it that will drive down the costs of debt in the long term for the benefit of all consumers.
Ultimately any scheme would be cost neutral, in that it would lead to lower overall bills against the counterfactual of not intervening, and contribute to lowering the overall cost of debt and therefore bills over time.” – Ofgem