From November 2023 – January 2024, Ofgem asked for stakeholder views on standing charges within energy bills.
In this article we summarise Changeworks’ input to Ofgem’s upcoming discussion paper.
What are standing charges?
If we use mains gas and/or electricity, then our energy costs normally divide into two parts.
Firstly, there’s how much energy we’ve actually used. This is measured in kilowatt hours (kWh). The more energy we use, the more we pay. The less energy we use, the less we pay.
Secondly, there’s the standing charge. The standing charge is a fixed cost, so it’s the same regardless of how much energy we use. It’s usually a daily amount, and there are separate charges for gas and electricity.
The standing charge covers the cost of supplying energy to your property. It includes things like maintaining the pipes and cables of the energy network and carrying out meter readings.
What are Changeworks’ views on standing charges?
We provided the following feedback to Ofgem:
We support a social tariff
Changeworks believes it’s crucial that energy suppliers bring in social tariffs. People who are in fuel poverty, and are severely rationing their energy usage, need better protection from unaffordable standing charges.
A social tariff offers cheaper energy rates to those who can least afford to pay. They already exist for other services, such as phone and broadband.
Ofgem could require that energy suppliers offer a social tariff to customers who receive certain benefits.
Energy suppliers already provide the Warm Home Discount to customers based on what benefits they receive. Eligibility could be verified by the Department for Work and Pensions in the same way.
At the very least, Changeworks believes there should be a social standing charge rate. In this case, people receiving certain benefits would pay lower (or no) standing charges.
We support rising block tariffs
We also support the option of a “rising block” tariff. This is a tariff with no standing charges.
With a rising block tariff, the unit rate goes up as you use more energy.
For example, if you use 0 – 1100 kWh, then the rate could be 6p/kWh. If you use 1101 – 2200 kWh, then the rate could go up to 14p/kWh.
As rising block tariffs are quite complicated, energy supplier advisors would need improved training. This would avoid billing issues, which are already a common problem for customers on other, simpler tariffs.
Multiple suppliers should offer block tariffs. This way, vulnerable customers can choose the best overall deal.
We believe standing charges put people off saving energy
From speaking with clients, our Affordable Warmth team knows that high standing charges can discourage energy saving. As a result, standing charges are stopping Scotland from both tackling fuel poverty and meeting its net zero commitments.
We also recognise that the solution isn’t simply to shift standing charge costs onto unit rates. Doing so puts vulnerable people at risk, especially those who rely on energy for medical reasons.
Instead, we would support both social and rising block tariffs, as outlined above.
We want a fairer regional pricing system
At present, standing charges for electricity vary across the UK.
Electricity standing charges are relatively high in Scotland compared to the rest of the UK. In rural Scotland, electricity is often the only option when it comes to heating. This results in higher usage charges. Add to this a relatively high standing charge, and the outcome is disproportionately high fuel poverty in these areas.
Changeworks proposes tackling these inequalities by levelling standing charges.
Why is Changeworks part of the conversation?
Changeworks has over 35 years’ experience in delivering high impact solutions for low-carbon living.
Our Affordable Warmth Service provides energy efficiency and fuel poverty advice to people across all of Scotland.
So far in this financial year (2023-24), our team have supported nearly 4,000 households. In turn, we’ve saved clients £780,000 through energy efficiency advice, tariff switching, debt and billing support, grants, and more.
Our advisors work extensively with clients and energy providers. We understand the impacts of standing charges, especially for consumers facing the worst impacts of fuel poverty.
We want to make sure that standing charges change in a way that protects the most vulnerable in our society.
Why does Ofgem want views on standing charges?
As the regulator of the energy industry, it’s Ofgem’s job to protect consumers.
Now that the energy crisis has entered its third winter, many people are still struggling with high gas and electricity costs. Ofgem recognises that part of this struggle comes from increased standing charges.
As a result, Ofgem are looking at whether changing the regulation of standing charges could make things fairer for consumers.
We welcome Ofgem looking into a reform of standing charges. This represents an opportunity to create an equitable way of pricing which protects vulnerable energy consumers.
We look forward to seeing Ofgem’s recommendations.