Ofgem has outlined potential reforms to the way energy costs are allocated, with a focus on standing charges and their impact on consumers, particularly those with lower incomes.
Standing charges are the fixed fees that consumers pay as part of their energy bills, covering the costs of maintaining the energy network and other operational expenses.
The regulator’s recent review, which gathered feedback from 30,000 respondents, revealed widespread consumer dissatisfaction with standing charges.
Many feel that these charges are confusing and unfair, particularly for low usage, low income households.
Despite these concerns, Ofgem highlighted that eliminating standing charges without broader market reforms could lead to increased costs for certain consumers, especially those with high energy demands.
Ofgem is now considering two main options to address these issues.
The first involves shifting a portion of supplier operating costs from standing charges to unit rates, which could potentially ease the burden on low usage customers.
The second option looks at increasing the diversity of tariff offerings, giving consumers more choice in how they pay their energy costs.
Additionally, Ofgem is committed to reassessing how electricity network costs are allocated, acknowledging that current decisions were made under different economic conditions.
The review aims to ensure that the allocation of costs supports the move towards net zero while maintaining affordability.
Ofgem plans to continue working with the government on these reforms, aiming to present options for change next year.
The regulator acknowledges that while these reforms may help some consumers, they may not fully address the affordability challenges faced by those with higher energy consumption due to necessary reasons, such as low energy efficiency in housing or reliance on medical equipment.
