In a concerning trend, standing charges for energy are set to exceed £300 per year for the first time, contrasting the decreasing rates for energy units. Experts anticipate that these daily charges for gas and electricity will continue to rise into 2024. While the cost per energy unit is falling, the escalating daily standing charges are expected to add over £300 annually to the average household bill.
Starting from October 1st, most households will witness a drop in energy prices, with the Ofgem cap reducing from £2,074 to £1,923 per year for the average home. This cap limits the charges for gas and electricity usage on variable-rate tariffs paid through direct debit. The decrease is due to cheaper unit rates, the cost per unit of gas and electricity used. However, the standing charges, covering various operational costs, are rising and will soon breach the £300 mark.
Presently, the average electricity unit rate stands at 30.11p per kilowatt-hour (kWh), decreasing by 9% to 27.35p per kWh on October 1st. Gas, with a typical unit rate of 7.51p per kWh, will fall by 8.2% to 6.89p per kWh from October. Simultaneously, the average electricity standing charge remains at 53p per day, while the gas standing charge will rise by 1p to 30p. Although these appear minor increases, standing charges have more than doubled in two years and are expected to keep rising.
As of October 1st, the typical household will pay £193.45 in annual electricity standing charges and £109.50 for gas, exceeding the £300 threshold for the first time. These standing charges encompass various expenses, such as customer service, property visits by engineers, power line maintenance, and unpaid energy bills. Unlike unit rates, these charges cannot be avoided by reducing energy consumption.
The surge in standing charges has faced criticism from consumer advocates, especially since these charges cannot be mitigated by energy conservation. The increase is attributed to rising costs for energy companies, including failed energy companies and significant expenses related to fixing electricity infrastructure.
Ofgem, the regulator, maintains that the standing charge is part of the price cap, setting a limit on total household charges. Suppliers can structure their tariffs differently, and some suppliers do not have a standing charge. The complexity of the issue makes it challenging to shift costs from the standing charge to a higher unit rate without adversely affecting vulnerable consumers.
Predictions about the future of standing charges are uncertain, but experts suggest that electricity standing charges could reach 60p a day by the next summer, with gas standing charges at 30p. The amount one pays in standing charges varies based on factors such as location and meter type. Liverpool has the highest standing charges at £362 per year, while London has the lowest at an average of £276 for gas and electricity. Homes with smart meters generally pay less than those with pre-payment or standard meters.
While Ofgem does not predict future price cap changes, Cornwall Insight, a reputable analyst, provides accurate energy bill forecasts. Cornwall Insight anticipates that the typical household will pay £2,032 from January 1st, decreasing to £1,964 in April, £1,917 in July, and rising again to £1,974 in October. As these changes loom, consumers must remain vigilant about their energy usage and explore cost-saving options to manage their bills effectively.