MSE News: More energy deals with NO standing charges finally on the cards

Chrysalis

mmmmikey said:

Chrysalis said:

MattMattMattUK said:

QrizB said:

Ofgem set the rules. It sounds as though they might change them.

If they change the rules re. how the cap is implemented, or how suppliers are charged for their customers, suppliers will be able to offer zero standing charge tariffs.

I think what is going to be interesting is that the supplier, at least from what we know so far, will be required to hand over the same amount for network upkeep, social policy etc. per customer that currently comes from standing charges, so I am not sure that a tariff that is just a flat conversion of the price cap will work, because there will be a bunch of properties that do not use energy for days, weeks or even months at a time and use very little when they do. 

The reality is that standing charges were and are the fairest, most rational way to attribute the fixed costs to customers and because Ofgem have listened to the whingers they are likely going to end up creating a subsidy from normal users to those on the zero standing charge tariff. 

Its going to be a bit messy, as you say, all these things will still apply.  There is an unknown here, how many people will take up the option.
Of course you know I disagree on the SC fairness argument, currently only a small portion of the SC is for fixed network costs, and a per household collection distorts the burden on different individuals.  High income and multi adult households benefit from it, low income singletons suffer from it.  It also reduces encouragement to reduce energy usage as a bigger portion of the bill is fixed cost. (we disagree on this but right now there's no need for you to reply to me, we've already agreed to disagree on this point so let's not get distracted by endlessly debating it here)
So the crunch is now both options will be available, and I expect there will be adjustments over time as they they get it right.

As you say, fairness is a subjective concept. We could go round forever debating that.

However this is presented if this goes ahead for every £1 that one low use customer saves, a high user customer will pay £1 more. An average customer will be no worse off. One concern I have is that some folks might be supporting this idea without realising that they're actually likely to be worse off.  I hope I'm wrong but I suspect that expectations have been set unreallistically and this will all end in tears.

I'm also wondering how this proposal would work for someone like me who has electric heating and solar panels so is a very low user in the summer and a high user in winter. Will we need to swap tariffs twice a year? Also, what would happen to smart tariffs such as those from Octopus? I'm really struggling to see how this could be made to work in practice - messy is possibly something of an understatement......

I believe there is no obligation to offer zero SC versions for fixes, Agile etc.  Just SVR the regulated tariff.
I feel the lower complicated way would have been to just keep one SVR and lower the SC (with a boost to unit rate), but Ofgem for whatever reason perhaps a stubbornness to not budge on SC did it this way instead.
I am not expecting them to do the way you describe, There will be higher unit rates on the zero version, and my suspicion is they will be considerably higher as a deterrent.  Then a year or two down the line they announce is scrapped due to low take up.  As having two versions of SVR I am struggling to think of a way it works cohesively.

Qyburn

Chrysalis said:

I am not expecting them to do the way you describe, There will be higher unit rates on the zero version, and my suspicion is they will be considerably higher as a deterrent.  

No matter how much higher there'll still be people better off, second home owners, solar/battery and other ultra low users. So there'll still be a shortfall to be recovered by increased prices elsewhere.

mmmmikey

Qyburn said:

Chrysalis said:

I am not expecting them to do the way you describe, There will be higher unit rates on the zero version, and my suspicion is they will be considerably higher as a deterrent.  

No matter how much higher there'll still be people better off, second home owners, solar/battery and other ultra low users. So there'll still be a shortfall to be recovered by increased prices elsewhere.

The end result is the same, but the wording I would have used would have been "and my suspicion is that they will will be considerably higher as energy suppliers seek to minimise the number of loss-making customers they have". 

If what the majority of campaigners in Martin's camp want is for all energy companies to be obliged to offer a Utilita-type tariff where the standing charges are recouped on the first couple of units than I would expect that is achievable with minimal regulation and only modest price rises elsewhere. But (and it's a big but) I'm sure this would fall far short of expectations as it would only help a small number of ultra low users with second homes and the like. 

The alternative would be to regulate the zero standing charge tariffs and it just becomes more and more complex. The decision about the level at which disabled pensioners should start to subsidise energy provision to second home owners strikes me as being a political one and I don't personally believe that it is a decision that is appropriately made by an un-elected regulator.

wrf12345

A gradual phasing out of the s/c at say 20 percent a year, part of the cost absorbed by the energy companies and the rest by hiking VAT on gas to cover the Green tax elements, might work and keep things simple but that would require people at the energy dept to wake up rather than wasting money on carbon capture and Ofgem management to stop daydreaming about pensions and lucrative employment prospects at the energy companies. 

Chrysalis

Qyburn said:

Chrysalis said:

I am not expecting them to do the way you describe, There will be higher unit rates on the zero version, and my suspicion is they will be considerably higher as a deterrent.  

No matter how much higher there'll still be people better off, second home owners, solar/battery and other ultra low users. So there'll still be a shortfall to be recovered by increased prices elsewhere.

There does seem bitterness from personal perspectives on it, which is how I interpret your comment, your concern is about a certain demographic getting a benefit from it rather than if the whole thing is workable.  I think it is fair to point out, what may seem a "natural" pricing to you, is not necessarily the case, different people have different point of views, e.g. there is an argument to be made, that moving variable costs to away from unit rates have to be recovered from somewhere and it ends up being the SC, basically the reverse of what you have just said.
The recent pricing model for SVR is quite different to historical levels, which is one of the reasons so many people got involved in it to try and get a correction.  Ofgem have even confessed to artificially raising the SC in recent years to unnatural levels to lower unit rates as they felt it was needed to help people with expensive to run medical equipment.

Qyburn

Chrysalis said:

There does seem bitterness from personal perspectives on it, which is how I interpret your comment, your concern is about a certain demographic getting a benefit from it rather than if the whole thing is workable.

Sorry it came across that way. Maybe I should mention that we would benefit big time from a zero SC tariff working as described. Accepting that fairness is not black and white, I would not find it fair.

Scot_39

Chrysalis said:

MattMattMattUK said:

QrizB said:

Ofgem set the rules. It sounds as though they might change them.

If they change the rules re. how the cap is implemented, or how suppliers are charged for their customers, suppliers will be able to offer zero standing charge tariffs.

I think what is going to be interesting is that the supplier, at least from what we know so far, will be required to hand over the same amount for network upkeep, social policy etc. per customer that currently comes from standing charges, so I am not sure that a tariff that is just a flat conversion of the price cap will work, because there will be a bunch of properties that do not use energy for days, weeks or even months at a time and use very little when they do. 

The reality is that standing charges were and are the fairest, most rational way to attribute the fixed costs to customers and because Ofgem have listened to the whingers they are likely going to end up creating a subsidy from normal users to those on the zero standing charge tariff. 

Its going to be a bit messy, as you say, all these things will still apply.  There is an unknown here, how many people will take up the option.
Of course you know I disagree on the SC fairness argument, currently only a small portion of the SC is for fixed network costs, and a per household collection distorts the burden on different individuals.  High income and multi adult households benefit from it, low income singletons suffer from it.  It also reduces encouragement to reduce energy usage as a bigger portion of the bill is fixed cost. (we disagree on this but right now there's no need for you to reply to me, we've already agreed to disagree on this point so let's not get distracted by endlessly debating it here)
So the crunch is now both options will be available, and I expect there will be adjustments over time as they they get it right.

But it's not a "small portion" - from 

https://consult.ofgem.gov.uk/energy-supply/standing-charges-domestic-retail-options/supporting_documents/standing_charges_domestic_retail_options.pdf


Figure 2.1

it's £121 of £220 of the average electric cap - that's not only the  biggest single component  - but at 121 of 220 - 55% just over half.

Edit £121 = 33p day

And the problem is their TCR showed that it was wholly inadequate and leading to cross subsidies for light users at tge previous level, and so has increased by £103 in last 2 years to date of report.

Edit £103 = 28.2p increase per day.

Figure 2.2 therein.


As per their latest update pre xmas afaik on 12 Dec 24

https://www.ofgem.gov.uk/publications/standing-charges-update-our-review

".....
Under all options, the unit rate would include the costs that are currently allocated to the standing charge. 

....

As part of our consultation, we will look carefully at what consumer protections might be needed, such as how consumers could determine which price cap option (with or without a standing charge) is best for them. We will also need to consider the impacts on suppliers and their ability to recover their efficient costs."

I suspect those looking for some sort of free ride, some significant overall reductions to their personal bills are going to be disappointed.

And a warning going forward as part of our net zero distributed generation model

"As we reduce our reliance on gas for generating electricity over time, unit rates should get cheaper. But there will be new fixed costs as we invest in new energy infrastructure, and therefore the balance of bills will change between fixed and variable costs."

So with current market pricing it sounds like Ofgem are if anything expecting that £121 to grow beyond its current levels. 

And the balance of all our underlying bill make up, if anything, to be shifting even further from unit to standing charge,  if the unit rates do fall ("should" get cheaper doesnt inspire 100% confidence).

As I've said before - someone has to pick up the tab for the 3 NG companies - NG, SPEN AND SSEN - forecast to spend upto £77bn in next 5 years alone.

Running new cables to literally dozens of distinct (some low power sites cf conventional generation) - wind and solar farms often 100 miles away in some cases to their target market. 

[Take recently authorised EGL2 - forecast cost £4.3bn.  Thats going to Help carry power say from GW of new licensed FOS wind off N Scotland and Islands to Yorkshire - that will need not only its own 505km 313m from Peterhead south -  undersea and underground cables, but that planned across the Morray Firth, miles of pylons upgrades to Thurso / North Coast of Mainland farm landing sites.  And potentially beyond to Orkney or Shetland islands themselves  - yes theres even a 600 MW 260km/160m hvdc link to Shetland tied in as part of planned Viking wind farm upgrade.]
 

Chrysalis

Qyburn said:

Chrysalis said:

There does seem bitterness from personal perspectives on it, which is how I interpret your comment, your concern is about a certain demographic getting a benefit from it rather than if the whole thing is workable.

Sorry it came across that way. Maybe I should mention that we would benefit big time from a zero SC tariff working as described. Accepting that fairness is not black and white, I would not find it fair.

Is fine, ultimately we going to get people unhappy with both methods.

Personally I find the current level of SC extremely unfair for the reasons I stated, but I do accept there is people for whatever reason find it fair to put variable costs and government policy costs on to SC.
So I do think those who favour the the way things Ofgem have done in the past couple of years have to try and understand it from another point of view as well, then its possible to see why there was a second consultation and then this happened.

Patr100

Some random thoughts which are mostly obvious, I expect.


1. The former income from standing charges will have to found somewhere by suppliers so go on the unit rate ie unlikely to  be subsidized externally somehow,

2. Only extremely low or non users will benefit.  As a low user I might expect to be paying about the same for electricity which is consistent for me - around 3/4 kw/h a day , while for gas , possibly saving as I only  use for a quick daily shower and washing the dishes. Rarely on for heating (though no SC might help me for the odd really cold day use) 

3. Should tariffs encourage low use generally ? Some higher users (eg for health) need to be protected or considered carefully.

4, If there is a mix of  SC and non SC tariffs to choose , perhaps that will allow some useful choice depending on expected use but the overall give/take economics for the suppliers  is  unknown .
What if a supplier finds they attract  too many loss making  users? Will like the landline/broadband split for many tears mean costs to the consumer across the board are still very similar, even when landlines are phased out so a cartel like market actually ends up with very little actual competition and choice on prices.
The difference I know being that internet use is today generally  not metered like energy though it can be and has been in the past eg early dial up pay by the minute or overall data caps.

Qyburn

Chrysalis said:

Qyburn said:

Chrysalis said:

There does seem bitterness from personal perspectives on it, which is how I interpret your comment, your concern is about a certain demographic getting a benefit from it rather than if the whole thing is workable.

Sorry it came across that way. Maybe I should mention that we would benefit big time from a zero SC tariff working as described. Accepting that fairness is not black and white, I would not find it fair.

Is fine, ultimately we going to get people unhappy with both methods.

Personally I find the current level of SC extremely unfair for the reasons I stated, but I do accept there is people for whatever reason find it fair to put variable costs and government policy costs on to SC.

I'm on record as stating I believe policy costs shouldn't be funded through the SC. But I understand the political pressure, if these are funded through tax rises the government will get stick, funded through SC people will blame "greedy energy companies".

Logically costs that a supplier incurs on a per customer basis should come from the standing charge, costs incurred on a per kWh basis on the unit price.