Ofgem has confirmed there will be a trial of new energy tariffs with lower or zero standing charges. Major suppliers including British Gas, EDF and Octopus are involved, with the trial expected to begin this year.
Standing charges have been a controversial topic, notably during the recent energy price crisis. They currently add more than £300 a year to a typical household bill, regardless of usage. This means households that use less energy still face a high fixed cost, while others spread it across higher consumption.
This trial is designed to test a different approach. But if standing charges go, where do those costs go instead? In this article, we’ll explain more.
Why standing charges are a problem
Standing charges are a fixed daily cost to the consumer. Every household pays them, whether they use a lot of energy or very little. They fund core parts of the system, including network infrastructure, maintenance and policy-related costs.
The controversial part of standing charges is how they are levied. Because the charge is fixed, it weakens the link between consumption and cost. Cutting energy usage does not remove a large part of the bill. No matter how much you conserve energy, you’ll still face that unavoidable charge.
It also creates an imbalance across households:
- Low-usage households pay the same fixed cost but over fewer units of energy
- Higher-usage households spread that cost across more consumption
- The effective cost per unit is therefore higher for those who use less
That’s why many in the industry think it’s time for a reassessment of standing charges. Those network costs need to be covered, but maybe they could be covered in a fairer, more balanced way.
What is Ofgem proposing?
Ofgem is not introducing a full reform to standing charges yet. Rather, it’s a controlled trial. Four large suppliers (British Gas, EDF, Eon and Octopus) will take part, each offering at least one energy tariff with a lower or zero standing charge. The exact detail is still incomplete, with pricing structures and eligibility rules not yet finalised. These structures define the trade-off between fixed and variable charges, so customers will need to assess them carefully.
A key point is how these tariffs will be regulated. Because they will be calculated differently from standard tariffs, they may sit outside the energy price cap. This creates more flexibility for suppliers, but also introduces risk as they rebalance their cost coverage. Will they:
- Lower or remove the standing charge?
- Increase the unit rate for energy?
- Adjust pricing in response to customer behaviour?
This detail is crucial to the success of the trial. Suppliers need to recover their fixed costs for network infrastructure and more, but where will they appear on the bill?
Ofgem is taking a cautious approach. The trial is limited in scope and time. It’s designed to test how different pricing structures affect consumers and suppliers before any wider rollout. In many ways, the ball is in the suppliers’ court. If they can balance fixed and variable charges fairly, it could be a win-win situation for everyone.
Winners and losers
These new tariffs will not lower costs for everyone. However, they will tie costs more directly to how much energy a household consumes.
Low-usage households should be the clearest beneficiaries. Removing or reducing the standing charge removes a fixed cost that they can’t typically avoid. It will shift more of the bill onto actual consumption, reducing total spend for households that use little energy. On the other hand, higher-usage households will see increased costs as unit rates should rise to offset lower standing charges.
Across the energy marketplace, there should be a redistributive effect:
- Lower-use households pay for less of the system’s fixed costs
- Higher-use households take on a greater share
- Total system costs remain in place and must still be recovered
Ofgem will monitor how different groups of consumers respond, as well as take feedback from suppliers. Can they make energy billing fairer without creating new problems?
Looking ahead
It’s understandable that many industry observers are getting excited about this trial. It signals a shift in approach to energy pricing, with Ofgem responding to genuine concerns about fairness and how fixed costs are shared across different households.
However, the underlying challenge remains. The UK’s energy system carries significant fixed costs that won’t disappear, even if standing charges are abolished. They’ll only move elsewhere on the bill.
The trial will test how far pricing can shift before new issues arise. If unit rates rise too high, there will be an outcry from higher-use households. If pricing becomes harder to compare, consumers will complain about transparency. It’s no surprise that Ofgem is moving carefully to assess how these changes affect different groups.
The direction of travel is clear: more flexibility, greater focus on the connection between cost and consumption. The outcome is less certain.