Standing Charge

Chris_b2z

wrf12345 said:

The retail energy companies can't make enough dosh from selling energy at three to four times wholesale so s/c's are very important in keeping them afloat and the system is set up to make new entrants comply with the norm.

British Gas recently introduced the Fixed Lighter 12M tariffs with much lower S/C. The Fixed Lighter 12M v3 tariff is no longer being offered. Hopefully, it was temporarily suspended pending review of Ofgem price cap decision and v4 will be announced shortly with similar discount.

wrf12345

Ir is true that if s/c's were gone retail energy would want to charge four to five times retail to make up for the loss of easy money from s/c's but I was being sarcastic and believe the industry would still be standing and still making a profit if there were no s/c's (on smart meters at least) and they were capped at three times retail pricing with a downwards formula that would take them eventually to a much lower multiple as technology progressed to a level that made them much more efficient. The higher the prices, BTW, the bigger the chunk of "headline profit" of 3 percent  so they have absolutely no incentive to lower prices or become more efficient. 

MattMattMattUK

wrf12345 said:

Ir is true that if s/c's were gone retail energy would want to charge four to five times retail to make up for the loss of easy money

It is not about "easy money", the money from the standing charge funds specific things, that revenue would need to be raised from the unit rates if it was not raised from standing charges. As the standing charge nominally covers most of the fixed costs of the connection then abolishing the standing charge and transferring those cost to the unit rate means that low users would end up being subsidised by average and high energy users. Low users are generally those with solar, heat pumps and batteries, average users are usually families, higher users are usually pensioners and the disabled. 

wrf12345 said:

but I was being sarcastic and believe the industry would still be standing and still making a profit if there were no s/c's (on smart meters at least) 

The industry could still make a profit without standing charges, that is not what rational people disagree with you about. The issue is that removing standing charges creates a subsidy situation where one group of energy users subsidises another, that is not a rational position to be in, neither is it "fair".

wrf12345 said:

and they were capped at three times retail pricing

Once again you refuse to understand what the costs of energy supply are, if you took the time to read the information available you would see that the raw input of energy is only one component of supplying the energy, there are many others and they exceed the cost of the raw energy, the rest is not profit, less than 3% of the cost is profit.

wrf12345 said:

with a downwards formula that would take them eventually to a much lower multiple as technology progressed to a level that made them much more efficient.

Energy supply is already efficient, network upgrades might improve transmission losses by 2-5% over the next two decades, but that is pretty much it. 

wrf12345 said:

The higher the prices, BTW, the bigger the chunk of "headline profit" of 3 percent 

That is how percentages work, however when prices were higher the profit was capped at 1.8% and at their peak suppliers were actually forced to sell at 10-20% below cost, so they lost money on every kWh of energy sold.

wrf12345 said:

so they have absolutely no incentive to lower prices or become more efficient. 

The supplier does not set the price and then get 3% profit on top, that is not how the regulation and SVT works. Ofgem looks at energy cost on the wholesale market, transmission costs, network costs, operating costs, required upgrades, social benefit costs, sets a price and within that is an allowance for 3% profit, the suppliers to not get to set their own prices on the SVT. They can set their own prices on fixes, but then that allows them to hedge which is why they can offer lower prices, or they can offer lower prices on ToU tariffs and they can do this because they can take benefit from lower off peak usage and pass that benefit onto consumers. 

Scot_39

wrf12345 said:

The retail energy companies can't make enough dosh from selling energy at three to four times wholesale so s/c's are very important in keeping them afloat and the system is set up to make new entrants comply with the norm.

Many energy retailers were not making profits during the last few years.  Around 30 failed, Shell sold out of retail in UK (Germany and one other iirc) as not a good business to be in.

Others - including sone if not all the big 6 - who survived posted losses in the retail divisions.

 
https://www.ofgem.gov.uk/sites/default/files/2024-05/Summary of changes to energy price cap 1 July to 30 September 2024.pdf


The wholesale energy costs - are down over £100 to £613 in the July cap - by your argument that would make the total £1839 to £2452 - not £1568.

Then look at what the other charges included in that £1568 breakdown are - and what they pay for 


Network costs - £363

Policy costs -  £188 - up £30 in April things like GBIS insulation grants and renewable obligation. 

As these rises discussed in more detail due to c20% rises in April ( than next quarters letter linked above ) - see its equivalent letter

https://www.ofgem.gov.uk/sites/default/files/2024-02/Default Tariff Cap Letter - 1 April 2024 .pdf

New debt allowance - £28

Admittedly this too supports suppliers - but liberal society stops them from recovering costs from all consumers or even fitting prepayment meters of late.  No one makes a retail shop give their goods - even essentials like food - away for free.


New ppm levelisation charge - £10

Read the actual breakdown - for Apr or July then post comments re cap costings and retailers and their operating profit not final profit margins - like the ebit 2.4%.

There are several legitimate areas where questions can be asked  - about whether reasonable allowances are included.

But retailers are not the only cost and with that profit built into the cap - national grid, cadent, local DNO distributors and the wholesalers producers profits are clearly obviously also paid from some of those breakdown lines.

Just as their equivalents are in a can of soup at your local store.