Will Ofgem's 'no standing charges' energy deals REALLY cut bills?

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Energy suppliers will have to offer tariffs with low or no standing charges under new proposals published by Ofgem.

Standing charges are set by energy suppliers and rack up daily, regardless of how much energy you use that day.

They mean that even a household that used no gas or electricity would still be forced to pay an energy bill, adding up to about £300 a year.

Currently, standing charges are set by the energy price cap at 31.65p for gas and 60.97p for electricity, but the actual rates will depend on where you live, how you pay your bill and the type of meter you have.

They are expected to fall to 29p and 53p, respectively, according to energy experts Cornwall Insight, but remain a hefty chunk of people’s bills.

Critics say that households that use less energy are unfairly penalised for lowering their usage but still have to shell out for the charges.

Low or no charges: Ofgem will consult on cutting standing charges but it could see overall prices rise

Ofgem has today announced a consultation on how low or no standing charge tariffs would work. While some suppliers have introduced tariffs with low or no standing charges, the plans would mean all suppliers would have to offer them by the end of the year.

It will look at various options including a single unit rate, which would mean households would have to pay the same unit rate for gas and electricity and a zero or low standing charge. But these rates would likely be much higher than the current price cap-aligned tariffs.

It is also looking at falling block tariffs, where customers pay a higher unit rate until a certain amount of energy and then a lower rate after that threshold. 

Similarly, it is looking at rising block tariffs, where customers will pay a lower rate until a certain point, after which they will increase.

Some suppliers have already introduced lower standing charge tariffs to help customers cut their energy bills.

A new EDF tariff tracks standard variable prices to undercut the price cap by up to £50 per fuel with the discount applied through lower standing charges.

It said the decision to cut its standing charges, which are a fixed daily charge levied on bills, rather than unit rates 'ensures all customers benefit equally from predictable cost savings'.

EDF say, based on the January price cap, the tariff will offer an annual average bill of £1,638 for a dual fuel customer paying via direct debit with exit fees of £25 per fuel.

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Will zero standing charges cut bills? 

The announcement of no standing charges deals has not been as warmly welcomed as it could be, as it involves shunting the charges elsewhere in bills.

Ofgem said deals could see a scenario where 'fixed costs covered by standing charges would shift to unit rates'.

Critics say that these tariffs will simply push the standing charges cost into energy unit pricing and could make bills more complicated.

Richard Neudegg, director regulation at Uswitch said: Consumers shouldn’t be under the illusion that under the price cap Ofgem will be able to reduce the much-hated standing charges without a trade-off elsewhere in the rates. 

'If there is an option with lower standing charges under the price cap, there will be higher consumption based charges instead. Comparing options will continue to be essential, as different options will work best for different households.'

Meanwhile, although Ofgem is targeting lower bills for customers, current forecasts suggest households will have to shell out even more for their energy when the energy price cap changes in April.

Cornwall Insight's April energy price cap forecast now predicts a typical dual-fuel household will pay out £1,823 from April, marking a 5 per cent, or £85, increase from January's price cap.

And the experts predict the situation is ‘unlikely to get better as the year progresses’ with a slight fall in prices predicted in the third quarter, before rising again in October.