Ofgem Mandates Zero Standing Charge Tariffs by Winter 2025

British households will soon be able to pick a standing charge tariff with no standing charge. This is part of Ofgem’s plan to tackle worries about energy costs. The energy regulator wants energy suppliers to offer these new tariffs along with the usual ones by winter 2025. This change aims to give better choices for people who find it hard to pay their energy bills.

What is a Standing Charge?

A standing charge is a daily fee that gets added to your energy bill. This fee is fixed and does not change based on how much energy you use. It helps cover costs like keeping the energy network running, delivering energy to homes, and managing suppliers. Many people have criticised this system. Martin Lewis, the founder of MoneySavingExpert, has called it a “poll tax.” He says it affects low-energy users the most.

Standing charges have gone up a lot in recent years because of the current price cap.

• Electricity tariffs: The average standing charge is 60.99 pence per day.
• Gas tariffs: The standing charges are about 31.66 pence per day.

These costs come to about £338 each year for an average household that uses both gas and electricity.

Ofgem’s Proposal for Zero Standing Charge Tariffs

Ofgem has a plan that will make energy companies provide two kinds of capped tariffs:

1. A standard tariff that has a daily standing charge and lower unit rates.
2. A zero standing charge tariff where the unit rate is higher.

This lets consumers choose the best option for their energy use. People who use less energy, like those living alone or who only use gas for heat in winter, can benefit from zero standing charge tariffs.

Why Standing Charges Are Controversial

The argument about standing charges is heating up because energy costs are still high. Fixed daily fees support the energy network’s basic costs. However, some people feel these fees unfairly hurt families that use less energy. For example:

• Customers who use low gas tariffs in summer still have to pay high fixed costs.
• Vulnerable groups, like the elderly and disabled, find it hard to accept daily charges even when they use less gas.

Transferring these costs fully to unit rates might make bills higher for people who use a lot of energy. This includes individuals with medical needs who depend on electricity for special equipment.

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Impact on Prepayment Meter Users

Households that use prepayment meters feel the effects of standing charges a lot. When the credit runs out, standing charges add up as debt on the meter. To get energy again, they need to pay this debt completely. Ofgem’s plan to offer zero standing charge options might help those who depend on prepayment meters, especially in the colder months of the year.

Balancing Zero Standing Charges with Higher Unit Rates

A zero standing charge tariff is a nice choice, but it has some downsides. Energy suppliers may offset the loss of daily charges by raising unit rates. This means the cost for each unit of energy used could go up. Customers who use more energy might see their bills increase.

For businesses, there are two choices for business gas and business electricity rates. Small businesses that use less energy might like the low standing charge or zero-charge tariffs. Larger businesses can still save money with traditional tariffs that have lower unit costs.

Addressing Energy Debt

Ofgem has announced new plans. This news comes as worries grow about energy debt for households. By September 2024, this debt has reached £3.82 billion. That amount has nearly doubled in just two years. The regulator aims to address this issue with new measures:

1. Help with debt repayment: Suppliers should take repayment plans from trusted groups like debt charities.
2. Debt assurance: Consistent and caring support for customers dealing with energy debt.
3. Custom debt solutions: A unique, one-time action to lower high levels of debt caused by the energy crisis.

Key Changes Consumers Can Expect

1. Zero Standing Charge Tariffs: All suppliers must offer this by winter 2025.
2. Price Cap Dual Options: There will be tariffs that include standing charges and those that do not.
3. Improved Debt Support: Suppliers will have a better way to handle energy arrears.
4. Transparency: Energy costs, daily rates, and repayment plans will be clearer.

The Future of Energy Tariffs

The new changes by Ofgem are meant to make the energy market fairer and better for people. With zero standing charge options, homes can match their energy tariff to how much energy they use. But energy comparison services are very important to help people find a better deal.

This change could really help people in the London region and other places where energy prices are higher. It may allow them to manage energy costs better.

How to Find the Right Tariff

• Compare standing charge energy options on trusted websites.
• Check your energy usage. People who use less may save with zero standing charge tariffs. Those who use more might like standard tariffs.
• Look for suppliers with good unit of energy prices and smart meters to keep track of how much you use.
• Use tools like Free Price Compare to get a list of energy suppliers with the best deals.

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FAQs About Zero Standing Charge Tariffs