Ofgem Proposes No Standing Charge Tariff for UK Homes

Ofgem, the UK’s energy regulator, has suggested a big change to the energy price cap. This change could alter how households pay for their energy.

Energy customers now pay a daily standing charge. This cost is the same no matter how much electricity or gas is used. The daily standing charge helps pay for energy network costs. This includes keeping the infrastructure in good shape and dealing with supplier issues.

The new energy tariff with no standing charge gives customers a choice:

• Choose a higher unit rate and avoid any standing charge.
• Keep the standing charge tariff you are using now.

Ofgem is accepting feedback until March 2025. The new tariffs might start by next winter (2025/26).

What Is a Standing Charge & Why Is It Controversial?

A standing charge is a regular daily fee that pays for:

• Network maintenance – Making sure the UK’s electricity and gas systems are working well
• Supplier failures – Covering costs for energy companies that shut down

Metering costs – Supporting smart meter installations and upkeep

How Much Do UK Households Pay?

The total standing charges for a dual fuel deal are £338 each year.

The Ofgem consultation wants to lower or get rid of this charge. They plan to use higher unit rates instead.

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How Would No Standing Charge Tariffs Work?

If it gets the green light, three new energy tariff structures could be set up:

1️⃣ Single Unit Rate Tariff

✔   There is no standing charge.

✔   Unit rates are higher per kWh.

✔   This is best for homes with low energy usage.

2️⃣ Falling Block Tariff

✔   Higher prices for the first few units of energy

✔   Lower prices after a certain amount is used

✔   Similar to some prepayment meter plans

3️⃣ Rising Block Tariff

✔   Lower rates when you first use it

✔   Higher unit rates after a certain limit

✔   Might charge more for homes that use a lot of energy

Example:: A home that uses less than 2000 kWh of electricity each year might save money. In contrast, homes that use a lot of gas or a lot of energy might end up paying more.

Who Would Benefit from a No Standing Charge Tariff?

The zero standing charge option may be good for some people, but it won’t be right for everyone.

✅ Winners

✔   Low energy users – People who use very little electricity or gas.

✔   Second-home owners – Those with properties that stay empty for long periods

✔   Prepayment meter users – Those who access energy only when they need it.

❌ Losers

❌   Larger households – Higher unit rates mean higher energy bills.

❌   Homes with electric heating – A lot of energy consumption could cost more.

❌   Vulnerable customers – They could face unexpected high costs in winter.

Will Energy Bills Go Up or Down?

To see the possible effects, let’s look at the current energy tariffs and compare them to a tariff without a standing charge.

Key takeaway: Homes that use low energy may pay less money, while homes that use high energy could have to pay more because their unit rate is higher.

What Do Energy Suppliers Say?

The energy market is divided on Ofgem’s proposal.

🔹 Energy UK, which is the group for energy suppliers, warns that:

• Higher unit rates might confuse customers.
• Energy suppliers buy power ahead of time. This makes it hard to change prices.
• Users of prepayment meters might find it hard to budget for higher energy costs.

Ofgem believes that a tariff with no standing charge will let consumers have more control over their energy deal.

Regional Impact: How Standing Charges Vary Across the UK

Energy standing charges differ in the UK. Ofgem sets an energy price cap, but costs for the network change based on the region. This means some households have to pay more for standing charges than others.

Why Do Some Regions Pay More for Standing Charges?

The cost of keeping the energy network running changes based on where you are. Here are some factors that affect standing charges:

• Network maintenance costs – Some places need more money for infrastructure. This means higher charges.
• Population density – In rural areas, standing charges can be higher. This is because fewer homes share the costs.
• Energy loss during transmission – Electricity loses more energy when it travels far. This leads to higher costs in remote areas.
• Local supplier rates – Different energy suppliers can have different fees. Prices can change based on the region.

How Standing Charges Compare Across Different UK Regions

Key takeaway: Households in Scotland and South West England have some of the highest standing charges. In contrast, London and the East Midlands usually have lower rates.

What Happens if Standing Charges Are Removed?

If Ofgem brings in a no standing charge tariff, the differences between regions might not matter as much. But, the cost would probably move into higher unit rates. This means that homes in areas with more energy usage could pay more for each kWh.

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What Happens Next?

• Ofgem’s consultation will continue until March 2025.
• New energy tariffs may come out by next winter (2025/26)
• Households can decide if they want to switch to a tariff with no standing charge.

Using an energy comparison service can help people find the best energy supplier. It also helps them get the right energy deal based on their energy consumption.