Government broadcasts evaluation of standing fees – may they lastly fall after tripling in simply seven years?
The Government has launched a new consultation that could help reduce energy standing charges.
The Department for Energy Security and Net Zero (DESNZ) this week said it was seeking views on removing the £500million annual cost of the Warm Home Discount scheme from standing charges.
The scheme offers a one-off £150 discount on your electricity bill, with the cost recovered by suppliers through the standing charge.
DESNZ says the inclusion of the scheme ‘ensures predictable cost recovery for suppliers’ but recognises the issues for low-usage households stung by higher standing charges.
Standing charges have come under intense scrutiny, having tripled from the introduction of the price cap almost seven years ago, from roughly 28p for electricity and gas, to nearly 90p.
As this element of an energy bill can’t be reduced, it is a particular issue for households that try to save money by limiting their usage.
DESNZ said the change ‘would help address the more regressive nature of standing charges and align warm home discount cost recovery with consumption, making the system fairer for low-use households’.
The Chancellor also recently announced plans to reduce household energy bills by £150 from April 2026.
It will do so by ending the Energy Company Obligation – a government scheme which sees suppliers funding energy efficiency upgrades – and by funding 75 per cent of the Renewables Obligation for three years, previously paid for by billpayers.
It is unclear whether suppliers will pass on these savings to consumers, though.
Will standing charges come down?
If the Government goes ahead with the proposal, it estimates households will save approximately £39 on a typical dual-fuel bill, around a tenth of the £300 they pay in standing charges every year.
The cost will have to be recouped in the unit rate, which is set to fall over the long term as the market starts to stabilise.
This, paired with the Government’s aim to bring down bills by £150, means bills should theoretically come down, but it remains unclear whether this will come out of standing charges.
DESNZ estimates that a low-usage household will see a £17 reduction in moving the Warm Home Discount scheme costs to unit rates, while a high-use electric storage-heated household will pay £47 more.
Accounting for wider measures announced in the Budget, higher-usage households will save approximately £395 a year, while low-use households will save £105.
While a step in the right direction, households will have to shoulder higher network costs in the coming years.
Last week, regulator Ofgem announced energy costs are set to rise by an average of £108 by 2031, £60 of which will be added to electricity bills. This will help to invest in grid capacity and reduce bills by £50 thereafter.
Low standing charge tariffs
Ofgem launched a review of standing charges in 2024 but decided against moving some of the charges to the unit rate.
It found many lower-income households are affected because even when they drastically cut their usage, they still pay over £300 a year in standing charges.
The regulator has said suppliers will have to introduce lower standing charge tariffs to help these customers, but the cost is likely to shift to unit rates.
Ofgem has not stated how the tariffs will work, but has indicated that average annual energy bills on the new tariffs will not be lower than the old ones.
If an energy firm were to launch a tariff with a 50 per cent reduction on its standing charge.
On a traditional tariff, a household – based on October price cap figures – typically spends £1,754 a year on energy, of which £320 is the standing charge.
If the standing charge is halved, the total cost of the energy consumed would increase in line from £1,434 to £1,594.
If you use a third less energy on the traditional tariff, you would pay £1,276 each year. However, under a reduced standing charge, you would pay £1,223 – a £53 annual saving.
