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Energy costs have increased. A survey of 2021 power prices, by price comparison site cable.co.uk , put the UK 191st out of 230 countries on price per kilowatt hour (kWh) of electricity. Across 60 tariffs, Britain came in at $0.25 per kWh – only beaten in Europe by Germany ($0.32 per kWh) and Denmark ($0.35 per kWh).
The government energy price freeze will only apply to unit rates rather than standing charges, which will stay as set by Ofgem for October 2022.
While many expected rising energy unit prices, driven by the increase in the wholesale cost of gas, many, like myself, are asking, why have ‘other’ energy related charges gone up so much? Who can tell me the truth behind an “inexplicable” rise in electricity standing charges?
If you check your energy bills, you might notice they include so-called ‘standing charges’, as well as the amount you pay for the gas and/or electricity you use.
Standing charges cover the cost to your supplier of actually delivering energy to your property. In that respect, they are similar to the rental charges you pay for a telephone landline.
As such, they must be paid whether or not you use any gas or electricity, which is why you will receive a bill even if your property was unoccupied during the period in question.
Frustratingly, it also means that the benefit of any energy-saving measures you implement will be lessened, which is why there have been calls for standing charges to be reduced or eliminated.
Gas and electricity standing charges are the fees your energy supplier imposes for giving you access to energy – they help pay for the UK’s energy distribution networks. Added to almost all energy bills, they are generally fixed at a flat daily rate.
However, the level of this rate can vary widely, based on the type of energy, the company providing it, and where you live. The amount you have to pay will also depend on whether you are on a single-fuel or a dual-fuel tariff.
Standing charges also vary in-line with the government’s new Energy Price Guarantee, which supplanted the Ofgem cap from 1 October 2022. The Guarantee, originally slated to last for two years, will now only operate until April 2023, and we await details of how standing charges will be levied thereafter.
From 1 October ’22, according to the government’s Energy Price Guarantee, the average electricity standard charge rose to 46p a day. The average gas standing charge l increased to 28p a day. This means that standing charges for both fuels therefore together costing you about £263 a year have risen to around £273 from October. Remember, that’s what you pay before you use any energy whatsoever.
As noted above, Price Guarantee will remain in effect from 1 October until April 2023 and will limit annual bills for a household with average consumption to £2,500 (pre October – £1,971). Given its six-month lifespan, the Guarantee will limit average bills to £1,250 for the period.
For the year 2022/23, all households will receive a £400 energy discount, achieved through an automatic deduction of £66 a month from electricity bills between October 2022 and March 2023.
Remember, bills vary according to usage, and the more you use, the more you pay. The figures quoted for the existing cap and the new Price Guarantee are for households with typical consumption. This equates to a 2-3 bedroom property using 12,000 kilowatt hours (kWh) of gas and 2,900 kWh of electricity per annum.
Energy suppliers use standing charges to cover costs such as:
- maintaining the energy networks, physical maintenance to wires, and pipes that carry gas and electricity to your home
- connecting your home to the energy network
- conducting meter readings
The new standing charge caps introduced in April 2022 also cover the administrative costs of switching failed energy companies’ customers to new suppliers.
According to research by the charity Fuel Poverty Action, these administrative costs account for £68 of the £75 annual standing charge hike.
As a consequence, saving energy can only reduce your bills up to a point. Cutting energy usage reduces the amount of gas or electricity you have to pay for, but has no impact on rising standing charges, which remain the same regardless of the energy you use.
Prepayment energy tariffs, where you pay-as-you-go using a prepayment meter, also include daily standing charges for gas and electricity. These standing charges tend to be even pricier than monthly payment tariffs, since installing and maintaining meters costs energy suppliers money.
If there’s no credit on your prepayment meter, those daily charges continue to rack up, so you may find some or all of the first money you put in goes towards paying what you owe in standing charges.
Prepayment customers are typically charged around 50p a day in standing charges for electricity, and 37p for gas but, again, this will depend on your supplier and where you live.
If your supplier imposes standing charges, you will still pay them even if you have a smart meter. These charges will be included in the total shown on your meter, which tells you how much energy you have used per day, week, and month. So even if you use no energy all day (say if you are on holiday), the display will still show that you have been charged an amount.
A customer of SSE (now owned by Ovo), said, the rise in unit price from 20.6p to 28.46p was “reasonable in the scheme of things” I suppose, but questioned why the standing charge was going up from 24.11p to 43.39p a day. Her annual bill is set to rise by almost £300, of which the electricity standing charge makes up more than £70.
“It’s the price of the energy that has changed, not the system of delivery, so I am struggling to understand how this is justified,” Ovo did not comment.
Standing charges for smart meter users will often be lower than those paid by customers with a standard meter, because having a smart meter reduces your supplier’s costs. Your energy supplier sets the level of gas and electricity standing charges that you have to pay, but Ofgem (and now the government) limits how much suppliers can charge.
One Twitter user posted that on his mother’s bill the standing charge for electricity had almost doubled, while another complained theirs had gone from £8.43 to £13.43 a month “before I even switch a lightbulb on”. Another wrote: “I can understand a rise in unit prices, but not the standing charge. Even if we cut our usage we have to pay that.”
Standing charges are a daily fee for gas and electricity customers and are added to your bill regardless of how much energy you use. Ofgem does not set a limit on this part of your bill – it is down to ‘greedy, opportunist suppliers’ how they break down unit and standing charge prices within an overall cap.
Ofgem ruled that energy tariffs no longer need include a standing charge following recommendations by the Competition and Markets Authority back in 2016. However, the vast majority of energy suppliers continue to add them as part of the overall energy cost.
When you compare energy deals at a comparison website, the price you are quoted will include standing charges for both gas and electricity, as well as the energy itself. You may be able to avoid paying gas and electricity standing charges if you can find a zero standing charge tariff. However, these deals are seldom on offer. And if you can find a no-standing charges energy deal, it would probably mean paying more for each unit of energy you use. Peter paying Paul.
And as a general rule, a ‘no standing charge’ energy tariff only makes sense if you use very little energy, because the property is a holiday home, for example, that is empty for substantial periods. If you are moving into a new property, you may be able to ask the supplier to suspend standing charges while the property is unoccupied.
And the worse is yet to come?
Shell Energy, despite announcing record breaking profits, recently warned those living in the east of England that its electricity standing charge was rising from 24.01p to 37.92p a day, or £138 a year. It’s not as big as some, but still represents a 57% rise. The rate for each unit of electricity is up by 40% to 29.24p per kWh.
In comparison, its gas standing charges are set to increase just over 4%, but the cost of each unit consumed is rising by an astonishing 81% from 4.05p to 7.34p per kWh. Other suppliers are imposing similar increases.
Joe Malinowski, founder of price comparison website, TheEnergyShop.com, says electricity standing charges have almost doubled since 1 January 2019, when the Ofgem price cap was introduced. Then, electricity standing charges for customers paying by direct debit were averaging 22.77p a day. On 1 April this is set to rise to 45.34p. Over the same period, he says, gas standing charges have risen 5.4%.
Rory Stoves, from comparison website Energyhelpline, says increase standing charges for electricity include the – running and maintaining the supplier of last resort scheme, and things such as the warm home discount.
Stoves says network costs “inevitably go up, especially when inflation is high, as there are rising costs for wages, material and so on”. But a far bigger part of the increase is from the “supplier of last resort” scheme – every household is expected to pay the billions that have gone into rescuing customers from failed companies.
Last week, energy analysts at Cornwall Insight said they expected average annual dual-fuel bills could be as high as £2,900 come October, “Regulatory changes ordered by Ofgem were already set to add around £30 to each customer’s standing charge,” says Andrew Enzor, managing consultant at Cornwall Insight. “Since then, there have been a wave of company failures, with each one requiring a bailout, the cost of which is being shared by ALL consumers”.
How come consumers (tax payers), not investors or shareholders bare the FULL brunt of failed enterprise? Investment is normally considered a recognised risk attached to investing in shares?
Stoves says with 29 companies failing in 2021, there is a high cost associated with looking after their customers, “balances are protected when people are switched to a new supplier, but there is money missing because companies have invested some of it, so it has to be clawed back,” he says. This is added to electricity standing charges, as every home has a supply, unlike gas.
“We calculate the cost will add a further £35 a year per household. Both of these are added to electricity bills, at a time when households can least afford it.” Currently, most of us are stuck with our existing provider and the prospect of further rises. Stoves says the “supplier of last resort” element in the current prices “is based on what Ofgem know so far about the cost – there might be more in the next cap, too”.
UK Energy Rip-off
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