Why are standing charges going up, when the energy price cap is falling?

How much we pay per unit of energy is falling, but daily standing charges are rising – and will soon add more than £300 a year to the average bill for the first time.

Most households will see a welcome fall in the price of energy, with the Ofgem cap dropping from £2,074 to £1,923 a year for the average home from October 1.

The Ofgem price cap limits how much you can be charged for the gas and electricity you use, if you are on a variable-rate tariff and paying by direct debit.

The fall on October 1 is happening because the unit rates – how much you can be charged for each unit of gas and electricity you use – will be cheaper.

Not standing still: Standing charges have been on a steady march upwards since 2021

Not standing still: Standing charges have been on a steady march upwards since 2021

But while the price we pay for the gas and electricity we use may be falling, the price we pay for daily standing charges is actually going up – and is set to rise even further.

Currently the average electricity unit rate is 30.11p per kilowatt hour (kWh), which will fall 9 per cent to 27.35p per kWh on October 1.

For gas, the typical unit rate is currently 7.51p per kWh, falling 8.2 per cent to 6.89p per kWh from October.

Meanwhile, the typical electricity standing charge is 53p a day and will not change on October 1. For gas, the typical standing charge will go up by 1p to 30p.

These might seem like small rises, but standing charges have more than doubled in two years, and are set to keep going up.

From October 1 the typical home will pay £193.45 in electricity standing charges a year and £109.50 for gas, taking the total to more than £300 for the first time.

What are standing charges?

Standing charges pay for the cost of supplying energy to your house.

Unit rates pay for the gas and electricity you consumer, and standing charges pay for everything else.

This includes things such as customer service, sending engineers to properties and maintenance of power lines, for example, as well as unpaid energy bills. 

Just two years ago, in the summer of 2021, the typical electricity standing charge was £91.25 and £98.55 for gas.

This rapid rise in standing charges has drawn fierce criticism from consumer champions – not least because these cannot be avoided by simply cutting energy use, as is the case with unit rates.

Simon Francis, co-ordinator of the End Fuel Poverty Coalition said: ‘From October 1, all households in every part of the country will pay more on energy standing charges, more into the profits of energy firms and many are more in debt to their suppliers.

‘Average energy bills are still almost double what they were three years ago and government help for households, which was available last winter, has been axed. This means this winter will feel worse for many households.’

Standing charges are going up because of rising costs for energy firms, including the cost of covering failed energy companies, and large increases in the cost of fixing electricity infrastructure, such as power lines.

An Ofgem spokesman said: ‘The standing charge is covered by the price cap, which sets a ceiling on the total amount households can be charged. 

‘Suppliers have always been free to structure their tariffs as they see fit and we know some suppliers do not have a standing charge. 

‘However, we continue to keep the issue and how costs are passed on to customers under review. 

‘It remains a complex issue, with a recent impact study showing that moving costs from the standing charge to a higher unit rate would result in winners and losers – and could be particularly damaging for the most vulnerable consumers.’

Breakdown: The electricity standing charge pays for things like customer service, and the cost of running the power network and operating meters

Breakdown: The electricity standing charge pays for things like customer service, and the cost of running the power network and operating meters

What is the future for standing charges?

Regulator Ofgem does not make predictions about the future of energy bills.

However, experts at analysts Cornwall Insight believe electricity standing charges could reach 60p a day by next summer, with gas standing charges at 30p.

How much you pay will vary

Standing charges vary depending on several factors, including where you live and what sort of meter you have.

cost of living

For example, homes in Liverpool have the highest overall standing charges, at a combined £362 a year.

Meanwhile, households in London pay the lowest, at an average of £276 for gas and electricity.

Households with a smart meter pay less than those with pre-payment or standard energy meters.

It is even possible to get an energy tariff with no standing charge at all, though these tend to be just as expensive as standard deals as unit rates will be higher.

What is the future for energy bills?

Ofgem does not make predictions about how the price cap will change in the future, although chief executive Jonathan Brearley has previously warned customers that he ‘Can’t offer any certainty that things will ease this winter’.

However, Cornwall Insight makes energy bill price predictions that are normally very accurate.

Cornwall Insight thinks the typical household will pay £2,032 from January 1, falling to £1,964 in April, £1,917 in July and then rising again to £1,974 next October.

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source: dailymail.co.uk