Ofgem has launched a consultation into whether to introduce an option under the energy price cap that will mean standing charges are altered, in a bid to keep bills easier to manage or pay back debt.
Standing charges pay for the fixed costs to suppliers of providing energy to homes.
Those who use little energy are hit harder proportionally. This is because they will still have to pay the same standing charges as households that use less gas and electricity.
From 1 January to 31 March this year, it costs 60.97p for the daily standing charge for electricity and 31.65p for gas.
What changes do the proposals suggest?
The new consultation lays out the options under consideration for how a low or no standing charge would work in practice. These will be consulted on until March 2025.
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Read MoreEssentially, this means tariffs with no standing charge will have a higher unit rate.
The options it has suggested include:
Tariffs with a single unit rate: This means paying the same unit rate for gas and electricity, regardless of how much energy you use, plus a zero (or low) standing charge. These rates are likely to be higher. Falling block tariffs: Customers pay a higher unit rate for your energy up to a certain level of usage, and then a lower unit rate for everything used after. Rising block tariffs: This is where customers pay a lower unit rate until a certain amount of energy used then higher rate after.One of the main issues is that even if the plan is implemented, households would have to opt in to a tariff with lower or no standing charges – they would not be put on one automatically.
People will also still have to take care of their energy bills and how much they are using – it will not automatically reduce bills, especially for those with higher usage.
What can households do to save?
There are also now several fixed deals that are below the current price cap level – which is £1,738 per year.
However, should prices come down in future, households will be locked into a higher rate.
What do experts think of the proposals?
“They’re a moral hazard that disincentivises lower users from cutting their bills, and leaves many older people, who only use gas for heating in the winter, still paying for it every day in summer.
“In our consultation response I will propose that firms must move vulnerable lower users to the ‘low or no standing charge’ tariff by default (using an opt-out mechanism) if their prior year’s usage indicates they would be materially better off on it than the standard price cap.”
“Consumers shouldn’t be under the illusion that under the price cap Ofgem will be able to reduce the much-hated standing charges without a trade-off elsewhere in the rates.
“If there is an option with lower standing charges under the price cap, there will be higher consumption based charges instead. Comparing options will continue to be essential, as different options will work best for different households.”
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