Energy customers receiving details of how much their energy bills will rise in April are braced for higher costs – but a big leap in standing charges has already taken many by surprise.
For millions of customers on variable rate tariffs the daily charge for electricity, applied whether you use any power or not, will leap, with some set to pay 80% more when they take effect in spring.
While many expected rising unit prices, driven by the increase in the wholesale cost of gas, they are questioning why other charges have gone up so much. One Observer reader got in touch last week about what she described as an “inexplicable” rise in her electricity standing charge.
A customer of SSE (now owned by Ovo), she said the rise in unit price from 20.6p to 28.46p was “reasonable in the scheme of things” 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,” she says. Ovo did not comment.
On social media customers from a wide range of suppliers have posted reported rises of about 20p a day, or £73 a year.
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 suppliers how they break down unit and standing charge prices below its overall cap.
However, it does make assumptions about how this will be done and, confusingly, publishes average standing charges on its website. These suggest that, from 1 April, direct debit customers will typically pay 45p a day to their electricity provider – up from 25p a day now – and 27p a day for gas – up from 26p now. Those increases add £76.65 a year to an average bill.
Ofgem also suggests the highest standing charges are paid by those who have a prepayment meter, or settle their bills by cash and cheque.
For prepayment customers, it suggests electricity standing charges will typically be 50p a day, and gas 37p. For cash and cheque customers it suggests electricity standing charges will be 51p a day and gas 32p.
These are in line with the changes many providers are communicating to customers.
British Gas has told customers its standing charges for electricity will be 45p for those with a direct debit, 50p for prepayment meters and 51p for cash and cheque. Gas standing charges will be 27p, 37p and 32p respectively.
Shell Energy 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%.
Standing charges cover a range of costs faced by suppliers. Rory Stoves, from comparison website Energyhelpline, says for electricity these include network costs – running and maintaining the system, 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, materials 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.
“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.”
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.
For customers who want to reduce their bills, standing charges are, unfortunately, not something you can do much about. When the energy market is more competitive, there are sometimes tariffs available without standing charges, but they have higher unit prices so it’s only worth switching if you use very little.
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”.