Energy regulator Ofgem has announced new rules requiring suppliers to offer zero standing charge tariffs, a move that could lead to substantial savings for low-energy users. The decision comes amid widespread criticism of daily standing charges, which currently add an average of £338 per year to household energy bills—regardless of actual energy consumption.
Under the new system, Octopus Energy customers on a two-year fixed tariff could save up to £676 if standing charges were scrapped today. The changes are aimed at helping consumers manage energy costs more effectively, particularly those who use less electricity and gas.
How Standing Charges Affect Energy Bills
A standing charge is a fixed daily fee that energy suppliers add to gas and electricity bills, covering network maintenance and operational costs. This charge applies even if no energy is used, meaning low-energy households pay a disproportionately high amount relative to their consumption.
Currently, the average dual-fuel household pays around £338 per year in standing charges alone. Consumer finance expert Martin Lewis has criticised this system, describing it as a:
“£388-a-year poll tax on energy bills, which are a moral hazard disincentivising lower users from cutting their bills.”
The argument against standing charges has been gaining momentum, with tens of thousands of consumers calling for them to be scrapped altogether. However, Ofgem has opted for a middle ground, requiring suppliers to offer a zero standing charge option, while still allowing standard tariffs to exist.
Who Benefits from Zero Standing Charge Tariffs?
The introduction of zero standing charge tariffs is expected to significantly benefit lower energy users, such as:
- Small households or individuals living alone
- People with second homes, who may only use energy seasonally
- Energy-conscious consumers who actively reduce their consumption
For these users, the removal of standing charges means that their bills will be based purely on the amount of energy they consume, potentially leading to hundreds of pounds in savings per year.
However, for higher energy users, the impact will be less clear-cut. Zero standing charge tariffs typically shift costs to the unit rate, meaning that while daily fees disappear, the price per kilowatt-hour (kWh) of energy could be higher. This means that:
- Households with high energy consumption, such as those with medical equipment requiring constant power, may not see any real savings.
- Those who use a moderate amount of energy will need to carefully compare tariffs to determine the best deal.
According to Tim Jarvis, director general of markets at Ofgem:
“Many people feel very strongly that standing charges are unfair and prevent them from managing their bills effectively.
We want to give consumers the ability to make the choice that’s right for them, without putting any one group of consumers at a disadvantage.”
When Will the Changes Take Effect?
Ofgem has set a deadline for energy suppliers to introduce zero standing charge options by next winter. Some providers, including Octopus Energy, already offer low or no standing charge tariffs, but these have often come with higher unit rates.
The new regulations will ensure that every supplier provides a clear alternative to standard tariffs, giving consumers greater flexibility in how they manage their bills.
Additionally, from 1 January 2025, Ofgem has already implemented a slight reduction in standing charges on standard variable tariffs:
- Electricity standing charges dropped from 60.99p to 60.7p per day
- Gas standing charges fell from 31.66p to 31.65p per day
While these reductions are minimal, the wider introduction of zero standing charge tariffs is expected to provide a more meaningful impact for households looking to cut their energy costs.
What This Means for Consumers
For consumers, the key takeaway is that choice is expanding. If you are a low energy user, switching to a zero standing charge tariff could dramatically reduce your energy costs. However, it’s essential to:
- Compare tariffs carefully to ensure that a higher unit rate doesn’t cancel out potential savings.
- Monitor supplier announcements in the coming months to see what new tariff options become available.
- Consider whether a fixed-rate or variable tariff is better suited to your energy consumption habits.
While this move doesn’t eliminate standing charges completely, it marks a significant shift towards more flexible pricing. With energy bills remaining a major concern for households, these changes could provide meaningful relief for those struggling with high fixed costs.
