What are standing charges? 

Part of your energy bill is made up of the cost per unit of electricity and gas. This is affected by a wide range of factors that impact the global energy market. The other part of your bill is a ‘non-energy’ element known as a standing charge. Here we explain what these are, and why they are increasing.

What is a standing charge?

The standing charge is a fixed amount that you pay on your energy bill every day, regardless of how much electricity or gas you use.

The charge covers those ‘non-energy’ costs that suppliers have to pay on behalf of customers. These include but are not limited to: the costs of using and maintenance of the energy networks (the infrastructure that gets electricity and gas to your home), costs of government support schemes and the costs of carrying out meter readings.

Standing charges are applied to both electricity and gas tariffs. They can also vary slightly by the region of the country you live in.

The energy regulator Ofgem’s rationale for why these costs should be included in the standing charges is to distribute the amounts evenly across everyone. If they were added to the kWh usage costs, it could lead to vulnerable households with high energy costs paying proportionally larger sums.

Why are standing charges increasing?

Here are the main factors that are driving the increases.

Costs of the failed suppliers

29 energy suppliers shut down as a result of the energy crisis over recent years. As we explained in a previous blog, the total costs from these failed suppliers (roughly £2bn) are shared across all remaining suppliers in the market through ‘Last Resort Supplier Payments’. These are added to the electricity standing charges as the costs are ultimately recovered on a flat rate basis per customer. For gas, they are being recovered via a volumetric charge, meaning the costs are added to unit rates. The costs associated with the largest supplier that ceased trading, Bulb, are not included in this amount.

Good Energy campaigned hard for these costs to be spread over a longer timeframe. However, Ofgem decided differently and accelerated the claims process instead. The cost recovery began from April 2022 and drove an increase in standing charges. The impact on bills is now lower, though small amounts of money will still be recovered through bills throughout 2024.

Warm Home Discount Scheme

The Warm Home Discount Scheme started in 2011 and is the primary government initiative to provide relief to vulnerable households for their energy bills. Like other energy related social and environmental policy schemes, the Warm Home Discount is paid for through energy bills, rather than general taxation.

And to ensure the schemes are paid for evenly amongst consumers, the costs are added to standing charges on energy bills.

The additional increases came in April 2022 when the government announced an expansion of the scheme spending to a total of £475m.

Network charging reforms

The way we all pay for using the network has been under reform by the energy regulator for a number of years now.

From April this year, the first of many decisions came into effect – moving distribution network residual charges to a fixed cost (which is added to standing charges).  

In simple terms, this means where previously a portion of the network costs (the costs for using and maintenance of the network infrastructure) were included in your unit rates, Ofgem has decided this should move to a fixed charge and collected via increased standing charges.

Again, Ofgem’s rationale for this change relates to fairness – so we all contribute to network costs in a way deemed proportionate by Ofgem’s new fixed charging bands. Finally, on top of this, network costs have been increasing because of the need to upgrade and expand our energy infrastructure. This has recently been compounded by inflationary pressures with rising costs for materials and wages.

Reducing standing charges for prepayment customers

Historically, standing charges were higher for people who pay for their energy through prepayment meters. This is because the costs associated with providing energy through a prepayment meter are higher. The government and Ofgem are of the view that this is unfair given that many prepayment customers have lower incomes and that their standing charges should be lowered to bring them in line with those paid by Direct Debit customers.

This standing charge reduction was put in place in July 2023, with the cost being met by the government up until March 2024. From April 2024, the costs of lowering prepayment standing charges will be met by spreading the costs over the bills of other customers. This means that there will be a slight increase in the standing charges paid by Direct Debit customers.

How will standing charge increases impact energy bills?

From April 2024, increases to standing charges are expected to add on average £43 to an annual energy bill. Combined with reductions in unit rates, most people will see their bills going down.