Householders who are careful with their energy use, such as pensioners, as well as second homeowners could soon enjoy lower energy bills under Ofgem plans.
Providers will soon be forced to offer at least one tariff with low standing charges to customers, according to proposals revealed by the watchdog.
However, these could result in higher bills for some – especially those who use a lot of energy. So how will it work and who will benefit from such tariffs?
What is proposed?
Standing charges are a fixed daily charge that households must pay regardless of how much energy they use.
They cover the cost of transporting energy to your home as well as some of the business costs paid by suppliers and government schemes.
Lower bills: Energy providers will be forced to offer at least one tariff with low standing charges to customers, according to proposals revealed by the watchdog
The charges have long been criticised because they mean households cannot cut their energy bills by simply consuming less.
Under the current price cap, households pay a standing charge of 29.82p for gas and 51.37p for electricity every day, regardless of how much they use.
Even if a household used no gas or electricity, they pay nearly £300 a year.
Users who take out one of the new tariffs will pay a lower standing charge but a higher price for every unit of energy used. Ofgem will ask suppliers to launch a tariff by the end of next January.
How could it work?
Though Ofgem will require suppliers to offer at least one low standing charge tariff, it has not stated how these must operate.
However, it has indicated that average annual energy bills on the new tariffs will not be lower than the old ones, so the lower standing charge will likely result in a corresponding higher unit price.
Say, for example, 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.
Savings: Pensioners who heat only the rooms they are in are more likely to save money with the new deals than large families where the heating is on throughout the home
Are low rates new?
One major supplier already offers customers the option of a fixed tariff with a lower standing charge.
EDF gives customers £100 off what they would expect to pay for standing charges under the energy price cap.
The unit rates for gas and electricity track the price cap, meaning they change quarterly.
Who will benefit?
Those who use low levels of energy or those who live alone are most likely to benefit.
Pensioners who heat only the rooms they are in are more likely to find this helpful than large families where the heating is on throughout the home.
Dr Craig Lowrey, principal consultant at analyst Cornwall Insight, says: ‘Those looking to save money by reducing energy use may find a lower standing charge tariff helpful as it could offer a more straightforward way to manage their bills.’
Households who have long periods of using no energy, such as those with second homes, or those who use little energy could benefit as they will probably save more.
However, Ofgem is proposing that customers are eligible for a lower standing charge tariff only if, every year, they use at least as much energy as the average household typically consumes in 90 days.
This is designed to limit the risk that second-home owners disproportionately benefit.
Standing charges vary dramatically from region to region due to the different costs of maintaining the infrastructure and transporting energy. The new tariffs will vary across areas as existing ones do.
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