In the wake of recent energy prices, Ofgem, the UK's energy regulator, has announced a review into standing charges for energy customers. Standing charges are a fixed cost that is included in every electricity and gas bill, regardless of how much energy is consumed. They are used to cover the costs of maintaining the energy supply network, taking meter readings, and supporting government social schemes.
The review is being launched in response to concerns from businesses and households that standing charges are becoming increasingly burdensome, particularly for smaller businesses with lower energy consumption. Many are arguing that standing charges should be more closely aligned with their actual energy usage, or that they should be phased out altogether.
Ofgem have asked charities, business groups, billpayers and suppliers all to weigh in with opinions on this before the review goes ahead. The energy regulator must think about consumers who use less energy who are being charged higher standing charges. However, they also have to consider energy users that rely on using a higher amount of energy and cannot afford for bills to be pushed sky high.
Key Issues in the Review
The review is expected to focus on the following key issues:
- The fairness of standing charges for businesses of all sizes
- The impact of standing charges on energy bills and business profitability
- The potential for alternative approaches to financing energy network costs
Potential Outcomes of the Review
The review could result in a number of changes to standing charges for business energy customers. These changes could include:
- Greater alignment of standing charges with actual energy usage: This could be achieved by using consumption-based standing charges, which would vary depending on the amount of energy consumed.
- A phased reduction in standing charges: This could be done over time to give businesses time to adjust to the change.
- The introduction of alternative mechanisms for financing energy network costs: This could include introducing a levy on energy consumption or a charge on electricity generated from renewable sources.
Impact on Businesses
The outcome of the review will have a significant impact on businesses' energy costs. Businesses that are currently paying high standing charges could see a reduction in their bills if standing charges are more closely aligned with their actual usage. However, businesses that use a lot of energy could see an increase in their bills if alternative financing mechanisms are introduced.
Next Steps
Ofgem will consider all feedback received during the consultation and will publish its findings in a report. The regulator will then decide on the next steps, which could include making changes to the way standing charges are calculated or introducing new regulations.
In the meantime, businesses can take steps to reduce their energy consumption and bills. These steps could include investing in energy efficiency measures, switching to a more competitive tariff, and negotiating discounts with their supplier.
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