The Rising Standing Charges with Decreasing Energy Price Cap – What’s the Deal?

The cost per unit of energy is decreasing, but daily standing charges are on the rise. In fact, they are expected to add more than £300 annually to the average bill for the first time. However, most households will still experience a decrease in energy prices. The Ofgem cap will drop from £2,074 to £1,923 per year for the average home starting October 1. This cap limits the maximum amount you can be charged for gas and electricity usage if you are on a variable-rate tariff and pay by direct debit.

The decrease on October 1 is due to cheaper unit rates for gas and electricity usage. The unit rates, which represent the price per unit of energy consumed, will be reduced by 9% and 8.2% respectively. However, despite the decrease in unit rates, daily standing charges are set to increase. Currently, the average electricity standing charge is 53p per day and will remain unchanged. The typical gas standing charge will increase by 1p to 30p per day. Over the past two years, standing charges have more than doubled and are expected to continue rising. From October 1, the average home will pay £193.45 in electricity standing charges per year and £109.50 for gas, reaching a total of over £300 for the first time.

Standing charges are the fees that cover the cost of supplying energy to your home. They include expenses such as customer service, maintenance of power lines, and unpaid energy bills. On the other hand, unit rates only cover the actual gas and electricity usage.

The significant increase in standing charges over the past two years has sparked criticism, particularly because these charges cannot be avoided by reducing energy consumption. Simon Francis, co-ordinator of the End Fuel Poverty Coalition, expressed concerns about the rising costs for households and the elimination of government assistance programs. He predicts that the coming winter will be even harder for many households.

The rise in standing charges is driven by increased expenses for energy companies, including failed energy companies and repairs to electricity infrastructure. Ofgem, the regulator, acknowledges that suppliers have the flexibility to structure tariffs as they see fit but continues to review the issue of cost allocation and its impact on customers, especially vulnerable consumers.

What does the future hold for standing charges?

The regulator, Ofgem, does not make predictions about future energy bills. However, analysts at Cornwall Insight anticipate that electricity standing charges could rise to 60p per day by next summer, with gas standing charges at 30p per day.

The variation in payment amounts

Standing charges differ based on factors such as location and meter type. For instance, homes in Liverpool have the highest combined standing charges at £362 per year, while households in London pay the lowest at an average of £276 for gas and electricity. Smart meter users generally have lower charges compared to those using pre-payment or standard energy meters. There are also energy tariffs available with no standing charges, although these tend to have higher unit rates.

What can we expect from energy bills in the future?

Ofgem does not provide predictions on future price cap changes. However, Cornwall Insight has a good track record in accurately projecting energy bill prices. They estimate that the typical household will pay £2,032 starting January 1, dropping to £1,964 in April, £1,917 in July, and rising again to £1,974 next October.

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