Energy standing charges, a penalty for prudence?

22nd Jan 2024

 

Last Friday was the closing day for the Ofgem consultation on energy bill standing charges. My instinct is that the majority of respondents will have supported their abolition. I’d be interested to know how many energy retailers did, very few I suspect.

The standing charge is a barrier to the market. It dampens the impact of any price signal. It does not reward prudent use of energy and makes it less transparent when making market comparisons. In short, getting rid would make the pricing of energy simpler to understand and more effective in driving behavioural change.

Now I know there is an argument that some high users of energy are trapped because of their circumstances – those who face mobility barriers and are stuck in the home or other vulnerable individuals, but the majority should not be penalised because of this. That’s a social policy issue, the energy market should not be the State’s proxy for support.

For the majority, and according to MoneySavingsExpert nine out of ten, they want to see an end to the standing charge. They see the general unfairness of paying for something whether they use it or not. Now life isn’t that simple, but energy pricing can be. The only thing stopping the abolition of the standing charge is Ofgem’s Energy Price Cap that effectively prevents a supplier increasing the unit rate to account for the abolition of the standing charge.

My suspicion is that if Ofgem were to permit its abolition and allow unit prices to reflect this, given the protection they offer consumers with a Price Cap and the campaigning voice of Martin Lewis, the first energy supplier to jump will see their market share pick up.

For the consumer, having the unit price as the only signal helps incentivise energy efficiency – which has to be a good thing. It will reduce energy usage, saving carbon, lowering imports of gas, and increasing our electricity security of supply. And yes, helps keep bills down too. Only Ofgem are standing in the way of change.

Mike Foster

EUA's Chief Executive

 

Recent Blogs