Energy Standing Charges re Martin's Blog Will energy standing charges be cut?

condoghost

Martin's Blog Will energy standing charges be cut? Updated 22 November 2024

Energy Standing Charges

2. Standing charges are a moral hazard It also means many elderly people who have gas only for winter heating pay every day in summer when they don't use it?
Many older people now set their heating much lower sometimes set at just 5c to 10c to ward-off damp and the risk of frost-damage making-do with a combination of energy-efficient electric body warmers / throws and hot drinks to keep ourselves warm resulting in this 'moral hazard' now extending across the winter months too.

5. There is one possible route a dual Price Cap either a low standing charges, higher unit rate one or a higher standing charges, lower unit rate one?
Interesting, we are already seeing providers manipulating standing charges and unit rates in their tariff offerings. When we look to 'See all deals' in Cheap Energy Club we are finding tariffs offered that skew our understanding of what our savings are likely to be in that a lower unit rate combined with a higher standing charge may well not produce the savings we think might be there when compared to our current tariff at the time we switch. The same is also true should that be a higher unit rate combined with a lower daily charge at the time we switch.

The devil is in the detail.

We are now forced to not only compare unit rates for both gas and electricity based on our usage at the time we are looking to switch but also the standing charges for both

• winter energy usage is higher, for example, a lower gas unit rate combined with a higher gas daily rate at this time of switching might well produce a higher saving for the next six months before looking to compare and switch again
• likewise summer energy usage is lower, for example, a higher gas unit rate combined with a lower gas daily rate at this time of switching might well produce a higher saving for the next  six months before looking to compare and switch again

Either way, it is no longer a simple case of comparing annual cost based on our annual usage and going for a Fixed 12M tariff. We must be prepared to consider the variance in the standing charges within the tariff comparison, the dynamics of the pricing combination of energy usage and standing charges, to switch coming up to winter to a No fee Fixed 12M tariff that is cheaper for the next six months and then again with summer just around the corner to switch to a No fee Fixed 12M tariff that is cheaper for the next six months.

It's not 'rocket science' but it's also no longer a case of 'simple maths'.

Of course it is all down to how much extra the savings will be. The reality is that for many of us these days every penny counts - a few extra pounds saved each month following this discipline might well be worth every extra penny saved compared to the effort we put in to it.

Thoughts?

EssexHebridean

Link to the actual blog:

https://blog.moneysavingexpert.com/2024/11/martin-lewis--will-energy-standing-charges-be-cut--/

prodgers66

It is my understanding that the original “need” for standing charges was put on bills way back in the day to pay for a “meter reader” to call and read your meter - thus needed doing whether you used gas or electric or not. And also to pay for the paper bills; which, again were sent out even if the bill was for nothing!
So, if i’m correct, then there is NO justification for a standing charge in present day times imo.  
If i’m wrong, then i’d like to know how they justify them against a moderate increase in unit charges to offset them. 

MattMattMattUK

prodgers66 said:

It is my understanding that the original “need” for standing charges was put on bills way back in the day to pay for a “meter reader” to call and read your meter - thus needed doing whether you used gas or electric or not. And also to pay for the paper bills; which, again were sent out even if the bill was for nothing!
So, if i’m correct, then there is NO justification for a standing charge in present day times imo.  
If i’m wrong, then i’d like to know how they justify them against a moderate increase in unit charges to offset them. 

You are not correct, the standing charges cover the fixed costs of one's connection, the unit rates cover the variable costs. 

Ildhund

prodgers66 said:

So, if i’m correct, then there is NO justification for a standing charge in present day times imo.  
If i’m wrong, then i’d like to know how they justify them against a moderate increase in unit charges to offset them. 

You can see what the standing charges cover on this Ofgem page. I think you'll find that any increase in unit prices to offset the standing charge would be anything but modest.

jerrypf

Just made the switch from E.ON Next to Ecotricity, then heard that standing charges may be reduced or scrapped. As I've just started a new fixed contract, will this be adjusted when changes come in? There is a £75 penalty if I cancel the contract early.

Ildhund

Standing charges won't be going away anytime soon. The current proposal is for suppliers to be obliged to offer two standard price-capped variable tariffs, one with standing charges and one without. The discussion at the moment is how to recoup the costs currently paid by the standing charge, because they have to be paid one way or another. 

Qyburn

jerrypf said:

Just made the switch from E.ON Next to Ecotricity, then heard that standing charges may be reduced or scrapped. As I've just started a new fixed contract, will this be adjusted when changes come in? There is a £75 penalty if I cancel the contract early.

No, a fixed tariff will stay fixed until it ends or you leave.  But before getting into a flap, are you aware that the current suggestion is to remove standing charge but increase unit price? It's likely to only benefit people using less than around 1,400kWh per year (electricity).

I hope nobody's getting the impression that standing charges might disappear with no price rise to compensate.

Scot_39

jerrypf said:

Just made the switch from E.ON Next to Ecotricity, then heard that standing charges may be reduced or scrapped. As I've just started a new fixed contract, will this be adjusted when changes come in? There is a £75 penalty if I cancel the contract early.

No.

Because it won't apply to your fix.

Just like it wont apply to the vast majority likely to stay on tariffs with standing charge  to avoid over paying for those who under pay for fixed costs on the zero sc options.

It won't even be a wise choice for vast majority of well below median tdcv homes let alone those near it  and above when they do it certain ways with some of the example basis examples like single rate or block increasing rate in the Feb 20 analysis graphs..

Given the many complications of coming up with any sensible rules and rates - I dont see this being quick in any case - regardless of notional timescales for late this year when exercise started.

And now energy and poverty charities have seen that Ofgems hands are tied and their solution examples will see many moderate - well below tdcv in some examples - users pay more - if end up making the wrong choice - or having it made for them (likes of Martin Lewis now even calling for automatic enrollment) - they are reacting vocally again against these proposals.

https://www.bbc.co.uk/news/articles/c3vwxyq33k0o
 

Scot_39

prodgers66 said:

It is my understanding that the original “need” for standing charges was put on bills way back in the day to pay for a “meter reader” to call and read your meter - thus needed doing whether you used gas or electric or not. And also to pay for the paper bills; which, again were sent out even if the bill was for nothing!
So, if i’m correct, then there is NO justification for a standing charge in present day times imo.  
If i’m wrong, then i’d like to know how they justify them against a moderate increase in unit charges to offset them. 

The information on what constitutes standing charges is available to read.

As is the Ofgem analysis as part of the Targetted Charging Review that led to more of the growing fixed capital investment costs in the network  being added as standing charges.

As low users were in the current Ofgem speak meaning suppliers were "under recovering" these costs from many and others - often vulnerable z medium to high users - were over paying.

£220/2700 tdcv = 8p c 33% increase on single rate.

And if Ofgem as Feb 20 interim consultation paper set lower crossovers- an even higher rate.

There is nothing moderate about the increase needed to offset the fixed - the growing fixed in fact as again Ofgem painfully felt it again necessary to point out in Dec update - charges facing our electricity network in particular. 

With the grid companies forecast to spend upto £77 bn in next five years and us forecast to pay likes of ESO £3bn pa in grid thermal constraint payments to often ludicrously remote wind farms - licensed to produce so paid not to under current contracts -  without grid infrastructure in place to support their generation capacity - so being paid not to generate - by 2030.

You want lower energy bills the answer arent simple - but a good starting point might be to cancel those remote farm licenses and build local instead.  

Scotland already has 15GW of renewables - 50% of UK total for c8% of the population.
It doesn't need that for it's own demand on a windy day - when lots of that and arguably all of the additional 6GW FOS wind planned by 2030 is all for shipping 100s of miles south to England. 
So headline schemes like new hvdc cable projects like egl1 (£2.5bn?) and egl2 (costs now estimated c£4.3 bn after inflation)  already authorised expenditure by Ofgem to bring another 4GW south (wgl link already exists from Ayrshire to N Wales) - and a further 2 egl3 (est cost £3.7bn) and egl4 (cost similar?) in planning to bring another 4GW south - needed to support existing licensed plans let alone any accelerated new on a windy day.
(And each of those links need power delivering to their substations at a cost of billions more in land pylons and possible new undersea links across Moray Firth)

As National Grid puts it here

https://www.nationalgrid.com/the-great-grid-upgrade/eastern-green-link-3-and-4/our-proposals

"EGL 3 and EGL 4 are needed as the existing transmission network does not have enough capacity to securely and reliably transport the increasing amount of energy generated in Scotland and Scottish waters, particularly from offshore wind, to population centres in the Midlands and the South of England."

All in part a massive national imbalance of geographical mismatch of generation vs demand duetin part to nearly a decade of mimbyism's defacto ban on Onshore wind in England since 2015 and remoting their generation before and since.

London used to even have coal fired generation like the landmark Battersea within its city limits.  There is a cost to having it local - but also now a real and growing cost to having GW of power generation shipped in some cases 100s of miles - in pylons and overhead cables and even higher financial cost per mile per GW underground and undersea cables.

Welcome to the reality of net zero transition costs - generation might one day mean our energy will be cheaper - but in the long interim we are paying for £10bn plus annual investment in grid upgrades to deliver it. And in recent years that been winning.

As even now wind CfD contracts at past rates are costing us on wholesale rates - around 1p/ kWh - plus the network costs to deliver it to our doors. 

And last year for first time hit £1bn in curtailment costs.  Around £30 per connection - and the grid thermal component alone - forecast to be treble that in next 5 years - £3bn - nearer £100 per connection.
 
https://www.telegraph.co.uk/business/2024/12/02/britain-paying-wind-farms-record-1bn-to-switch-off/

And the simple fact that the last auction saw a dramatic increase in costs for FOS wind - blowing the previous c4p lows out of the water - says the path in medium term is no longer so quickly / obviuosly downwards. At best those higher wholesale costs will not offset grid / network infrastructure spending anywhere near as quickly.