Martin Lewis: Why are energy standing charges so high? What can be done

MiserlyMartin

MattMattMattUK said:

4ThePeople said:

people are paying around £300 a year to power a smart meter in their home, 

They are not, you do not pay for the power that powers a smart meter. They are paying for a grid connection, which supplies, on demand, up to 100 amps of power, as well as the maintenance of the grid which supplies that power.

The smart meter gets its power from your side of the meter. The consumer does foot the bill for the smart meters electricity use. But it's not as much as £300, more like £10-20 a year

MiserlyMartin

Gerry1 said:

michelleduer said:

I'm a low user yet pay almost double the standing charge on my electricity here in the North West compared to a customer in London. How is this fair? 

Renting a property in London probably costs twice as much as in the North West, so it's just swings and roundabouts.

But salaries are much lower in the north than in London. Water bills are also higher in the north. Heating your home costs more in the north because its colder. Council tax on a band D house costs more in the North. More roundabouts than swings?

MattMattMattUK

MiserlyMartin said:

They really seem to have it in for gas. Banning gas boilers, with cookers to be coming for next, now putting green electric subsidies onto gas.

Gas needs to be phased out in the medium term, whilst no new boilers will be able to be installed after 2025 that is for new builds and the reality is that is because they are not needed and it would not be worth installing gas for cooking only. There is currently no date for a ban on replacement boilers and/or phasing out of gas suppliers, but the late 2040s is likely for replacements and at some point in the 2050s for discontinuing gas supplies. 

MiserlyMartin said:

But end of the day gas is cheaper per KwH

It is, but that is because it does not account for the environmental cost of burning fossil fuels,  so ultimately it needs to be phased out. 

MiserlyMartin said:

and their policy of artificially inflating gas prices so that electricity is cheaper will fail, because the networks and grid will just not cope with demand for that instead of gas, then with all the electric car use on top.

The electricity grid will cope because it is being upgraded and there will be enough capacity in it, as gas is gradually phased out the electricity grid will be upgraded to cope. 

MiserlyMartin said:

But by their logic - With high standing charges I was wondering if you should be able to tell your gas company to disconnect you for 9 months of the year and only have it on in Jan - March when you need to heat the house

You can, they will charge you for disconnection and then charge you for reconnection. Remember that the policy is not to give you the cheapest energy possible (or we would still be burning coal), it is a balance of cost of the network and cost of the energy itself, whilst also managing issues of climate change, localised air pollution and going forward, energy security. 

MattMattMattUK

MiserlyMartin said:

Gerry1 said:

michelleduer said:

I'm a low user yet pay almost double the standing charge on my electricity here in the North West compared to a customer in London. How is this fair? 

Renting a property in London probably costs twice as much as in the North West, so it's just swings and roundabouts.

But salaries are much lower in the north than in London. Water bills are also higher in the north. Heating your home costs more in the north because its colder. Council tax on a band D house costs more in the North. More roundabouts than swings?

The average worker in the South has less discretionary income than those in the north and what they do have also does not go as far. Now in many ways averages are not that useful, especially across vast regions such as North and South, but for example the NLW is the same in all regions of the UK, yet in London and parts of the South it is barely enough to live on, where as in the North it is more than adequate because rent/mortgages are so much lower. If you remove the upper and lower quintile of income in both the North and South the average for the middle 60% is roughly the same across the whole of the UK, the bottom 20% is almost exactly the same across the UK as it is composed of those on benefits, with somewhat higher housing benefits in the South, but those entirely eaten up by higher housing costs. 

MiserlyMartin said:

But salaries are much lower in the north than in London. 

Compared to London yes, and small parts of the South East, but not compared to most of the South, nor the Midlands.

MiserlyMartin said:
Water bills are also higher in the north.

A quick comparison of Thames Water (covers most o the South East), compared to Yorkshire Water and Northumbrian Water shows that water charges are 15-18% more expensive in the South than in the North.

MiserlyMartin said:
Council tax on a band D house costs more in the North. 

It varies by region and even local authority, but outside of London there is generally not as much variation between North and South as there is between one council and another, for instance there is a bigger difference between Surrey and Kent than there is between Kent and Greater Manchester, or Surrey and York. Business rates are also far higher in the South as they are charged on the rateable value of the property and there are also many more zero rated enterprise zones in the North than in the South (there are only nine in the South East, none in London, six in the South West, three in the East of England, but there are 18 in the Midlands and 36 in the North). 
https://www.gov.uk/government/statistics/council-tax-levels-set-by-local-authorities-in-england-2023-to-2024/council-tax-levels-set-by-local-authorities-in-england-2023-to-2024

MiserlyMartin said:
More roundabouts than swings?

When you account for the fact that housing costs in the South, but particularly London and parts of the SE, are more than double those in many parts of the north (although though Cheadle Hulme, Wilmslow, parts of Leeds, York etc. are some of the most expensive parts of the country for housing) and housing costs are by far households largest cost, the differential disappears for all but the highest earners. 

TheElectricCow

MiserlyMartin said:

MattMattMattUK said:

4ThePeople said:

people are paying around £300 a year to power a smart meter in their home, 

They are not, you do not pay for the power that powers a smart meter. They are paying for a grid connection, which supplies, on demand, up to 100 amps of power, as well as the maintenance of the grid which supplies that power.

The smart meter gets its power from your side of the meter. The consumer does foot the bill for the smart meters electricity use. But it's not as much as £300, more like £10-20 a year

While I can't speak for the set up and wiring of your meters, this certainly isn't the case for mine, the power my meter uses is not measured/billed for (fairly easy to determine in a low usage household, thanks to the data a smart meter provides).

markin

The smart meter costs in the standing charge are u think £19 a year.

maxiemaxie

At the risk of repetition...
When energy was privatised the government rational was to provide competition, thus reducing prices to consumers... to remove government involvement (interference) in the energy industry by making it independant.

That strategy has failed on both counts, it has neither reduced prices nor government interference. And the standing charge has been a whipping boy between government and industry ever since.

When I returned to the industry in 2007 the popular complaint was that there were so many tariffs that comparison was almost impossible. Cue government restrictions on the number of tariffs per supplier, and the inevitable demise of no standing charge tariffs.

Until that point it was a matter of consumer choice. If a standing charge suited you, or not, there was a tariff to suit. That's the point, it should be a consumer choice.

NSC tariffs did return, with the advent of a much larger number of small suppliers. I was with one, Robin Hood Energy, an offshoot of Bulb I believe, supported by a local council. It was perfect, my bills as a low user fell to about £5 pcm and could have been lower but for a tariff minimum.

Boris killed Robin Hood, and many others, with the price cap. Small suppliers had a different business model than the big six, and a price cap in combination with an inability to trade in future prices (due to limited financial reserves, lack of expertise and frighteningly small margins).

Because so many suppliers started to fail Ofgem introduced Supplier of Last Resort, a scheme where surviving supplier could be obliged to take business from failing suppliers. It had to be paid for... Standing Charge

Now the price cap exists, and once more there is little or no competition, small users can't get a fair shake and larger users shrug and say why should they.

Supplier could, and should, offer both types of tariff. It's just arithmetic for them, their everyday business. And they used to do it without any problem at all. And they still could.

If it makes it hard for Ofgem then sorry,  but tough titty, and saying that it's to safeguard the consumer doesn't cut it. I don't want to be safeguarded into paying £15/kWh (standing charge + 1 to 3 units for a month), any more than a high user wants to pay £0.75p per unit to save the 50p (ish) standing charge on a daily consumption of hundreds of units.

Ofgem needs to stop imposing simplistic and highly divisive rules and stick to its purpose, curbing the worst behaviours of a free market whilst encouraging the best, in the interests of consumers.

dealyboy

@maxiemaxie ... well made points said (or typed) with feeling  ... it's a very contentious subject as I'm sure you know if you've been following many SC threads/polls on the Energy board in recent months.

I don't know what the answer is, but one thing I can be sure of, whatever solution is proposed to whichever dilemma is on the table, half the people will disagree.

MattMattMattUK

maxiemaxie said:

At the risk of repetition...
When energy was privatised the government rational was to provide competition, thus reducing prices to consumers... to remove government involvement (interference) in the energy industry by making it independant.

That strategy has failed on both counts, it has neither reduced prices nor government interference. 

We had pretty much the cheapest energy in Europe until 2022 and have done for years, of course we will pay for that in the long term as it is funded by minimal investment and moving the costs to private enterprise, which means that in the long run they cost more, but up until recently the vast majority were better off because of privatisation. 

maxiemaxie said:

And the standing charge has been a whipping boy between government and industry ever since.

The Standing Charge has not been a whipping boy, I presume you do not understand the meaning of that phrase.

maxiemaxie said:

When I returned to the industry in 2007 the popular complaint was that there were so many tariffs that comparison was almost impossible. Cue government restrictions on the number of tariffs per supplier, and the inevitable demise of no standing charge tariffs.

Until that point it was a matter of consumer choice. If a standing charge suited you, or not, there was a tariff to suit. That's the point, it should be a consumer choice.

NSC tariffs did return, with the advent of a much larger number of small suppliers. I was with one, Robin Hood Energy, an offshoot of Bulb I believe, supported by a local council. It was perfect, my bills as a low user fell to about £5 pcm and could have been lower but for a tariff minimum.

Boris killed Robin Hood, and many others, with the price cap. Small suppliers had a different business model than the big six, and a price cap in combination with an inability to trade in future prices (due to limited financial reserves, lack of expertise and frighteningly small margins).

Because so many suppliers started to fail Ofgem introduced Supplier of Last Resort, a scheme where surviving supplier could be obliged to take business from failing suppliers. It had to be paid for... Standing Charge

Yes it had to be paid for, so does the fixed costs of the network and certain policy choices. Move those costs to unit rate and high users (usually the disabled and pensioners) pay more and low users (usually those with solar) pay less, but both still use the network, so should still pay for the costs of that. 

maxiemaxie said:

Now the price cap exists, and once more there is little or no competition, small users can't get a fair shake and larger users shrug and say why should they.

Lower users and large users are both affected equally by the price cap and lack of competition.

maxiemaxie said:

Supplier could, and should, offer both types of tariff. It's just arithmetic for them, their everyday business. And they used to do it without any problem at all. And they still could.

A no Standing Charge tariff would likely not be viable in the current climate, those with solar and batteries could get away with paying nothing towards network upkeep for the majority of the year, being able to avoid importing gride energy for 6+ months of the year, most second homes would not need to pay anything. Those cost, still needing to be covered would be move onto other users, which is hardly a equitable situation. 

maxiemaxie said:

If it makes it hard for Ofgem then sorry,  but tough titty, and saying that it's to safeguard the consumer doesn't cut it. I don't want to be safeguarded into paying £15/kWh (standing charge + 1 to 3 units for a month), any more than a high user wants to pay £0.75p per unit to save the 50p (ish) standing charge on a daily consumption of hundreds of units.

It is not hard for Ofgem, it just does not make sense to lump everything onto unit rates, a separate standing charge and unit rate make far more sense when one looks at the way the networks operate, having to maintain a connection directly to premises. 

maxiemaxie said:

Ofgem needs to stop imposing simplistic and highly divisive rules and stick to its purpose, curbing the worst behaviours of a free market whilst encouraging the best, in the interests of consumers.

Their purpose is to ensure stability of the supply and viability of the suppliers, whilst minimising costs to consumers. Standing charge and unit rate is the most rational way to do that based on the way the network needs to be funded. It is not in the interests of consumers to create a massive subsidy from higher users to lower users, however that is what those calling for the abolition of standing charges want. 

PascalG

Sorry, late to the party, but these standing charges need to be scrapped for all and we need a cap on energy, I mean a serious cap.

When I was with Green they had 10p and 15p

When I was with Solarplicity these were my rates

Electric	0.14548
Electricity Standing	0
Gas	0.0348
Gas Standing	0

They did not survive because of the way OFGEM built this market

These energy companies already fooled the Government and OFGEM by getting them to give them between £10bn and £15bn for a project that failed on it's stated benefits from day 1. 

Then the energy companies dumped crappy SMET1 meters on people that stopped communicating if you changed supplier, they said on radio that six million homes have SMET1 meters and they will upgrade them only when the customer makes a big fuss (I am guessing an ombudsman referral).

Then because of mismanagement these energy companies want US to pay because they went bust and failed to keep adequate reserves, yet the shareholders do fine

British Gas profits soar by staggering 889% to record £969m as households struggle with huge bills

https://www.independent.co.uk/news/uk/home-news/british-gas-profits-centrica-energy-bills-b2382758.html

So the country has got into another half a trillion of DEBT bailing out Energy companies, it is that debt that is causing the BOE to increase interest rates and crippling our economy.  

Consider the logic, "we need growth"  and "we need to cool down this economy"

You can't do both at the same time, it will tear us apart by pulling us in two directions at the same time.

It should have been the energy company shareholders who bailed them out or else they should be allowed to go bust, the shareholders get nothing and the customers are moved into companies that can be sold off later (not my idea but that of one of the companies that went bust).

It is enough to make people vote Labour, all they need to do is announce that they are holding the companies responsible and putting a levy on dividends as well as a cap, then announce that any company that is not solvent will be nationalised.  The shareholders will sell their shares in a rush so nobody to payout when they nationalise it.

Honestly, we are such mugs in this country.