Every energy supplier will be required to offer energy tariffs with low or no standing charges so customers can choose to pay these costs as part of the unit rate, under plans published by Ofgem.
The regulator has launched a consultation on how proposals to introduce an option under the price cap that will cover zero standing charge tariffs, where the fixed costs covered by standing charges would shift to unit rates, could work in practice. Ofgem’s proposal is for these tariffs to be available for next winter (2025/2026).
Standing charges cover the fixed costs of delivering energy to peoples’ homes and businesses, including the cost of essential maintenance and infrastructure upgrades. Tens of thousands of consumers responded to Ofgem’s call for input and asked for standing charges to be removed altogether, saying that reducing or removing standing charges would make it easier for them to manage their bills or pay back debt.
However the regulator is clear that it cannot remove the costs that make up the standing charge from the system, it can only moved from one part of the bill to another. This means that tariffs without a standing charge will have a higher unit rate. These may be better suited to those who are low energy users but will not automatically equate to a cost saving for all consumers.
Options under consideration for zero standing charge tariffs include:
- Tariffs with a single unit rate, meaning the same unit rate would apply at all levels of energy consumption.
- Falling block tariffs, where customers would pay a higher unit rate until a certain amount of energy is used, and then a lower rate thereafter.
- Rising block tariffs, where customers pay a lower unit rate until a certain amount of energy, and then a higher rate thereafter.
Charlotte Friel, Director for Retail Pricing and Systems at Ofgem, said:
'We know from the huge response we’ve had that many feel standing charges are unfair. However, we also know that vulnerable, high-energy users – including those who rely on medical equipment at home or low-income families in poorly insulated houses – would suffer disproportionately if these costs were added to the unit rate for everyone.
'That’s why we’re moving forward with plans that will give customers a choice and more control over how they choose to pay for their gas and electricity.
'We’re looking closely at how these tariffs will work in practice, but everyone will need to carefully consider which option best suits their needs. The costs included in the standing charge ultimately have to be paid. But while they may not save everyone money, they will give people a choice, and greater control over their bills.'
Alongside options for how zero standing charge tariffs could be structured, Ofgem is also considering if minimum usage requirements are needed to ensure the basic costs of supplying energy to homes or businesses are covered. This would also ensure essential costs currently included in the standing charge are paid fairly by all customers.
The consultation follows an options paper published last year on a number of short-term options to reduce the standing charge. However, Ofgem warned that there was evidence of the risk of harm to some customers in very vulnerable circumstances who are high users of energy, often for medical reasons, if the fixed costs currently covered by standing charges were moved to unit rates.
Ofgem acknowledges the cost of energy continues to be a huge challenge for many households. As part of its work to reset the debt and reform the energy system, it is also carefully considering how it can provide direct support to those struggling the most, while driving up standards of service across the board for every customer.
Late last year the regulator published its plans to tackle the growing impacts of rising debt in the energy system, and create lasting change in the way debt is managed and customers in debt are supported. The plans could see a fund called the Debt Relief Support Scheme established, which suppliers would use to either write off debt that is so significant it will never be paid back or help pay off debt by ‘debt matching’ customer payments.
It also set out ambitions to improve the standard of service from suppliers when supporting customers that are struggling to pay their bills. The proposals would make it easier for consumers to get help from charities and debt support agencies and ensure a consistent approach is taken across the board, to help to limit the risk of unsustainable levels of debt building up in the future once again.
Ofgem is asking for views on the options presented in its standing charges consultation, in particular from charities, consumer groups, and energy suppliers, before the closing date of on 20 March 2025.
View the consultation.
Source: Ofgem
