Standing charges: domestic retail options

What this is about

Ofgem is consulting on options to reform domestic standing charges — the fixed daily amount every household pays regardless of how much energy they use. Standing charges currently recover network maintenance costs, metering costs, and the costs of government social and environmental schemes (Warm Home Discount, Supplier of Last Resort levy, green levy contributions). For a household using no energy at all, the standing charge alone runs to roughly £300/year on a dual-fuel supply.

This is the second stage of a review that began in 2023, when an initial call for input drew over 30,000 responses — an extraordinary number for an Ofgem consultation and a clear signal of political salience. The driver is straightforward: standing charges have risen sharply since the energy crisis, partly because supplier failure costs (SoLR levies) and network reinforcement costs for net zero have been loaded onto the fixed charge. Consumers see a bill they cannot reduce by cutting consumption. That breaks the basic incentive logic of metered supply and undermines the case for energy efficiency and rooftop solar. Ofgem published this options paper in August 2024, with a view to consulting on a specific zero standing charge option within the price cap in early 2025.

Options on the table

The full options paper (linked from the consultation page as a separate PDF) sets out a spectrum of reform. The landing page describes the broad shape: moving some or all costs currently in the standing charge into the volumetric unit rate, and increasing the range of tariff structures suppliers can offer. Three distinct approaches emerge.

#### Partial rebalancing: move selected cost components to the unit rate

The least disruptive option. Ofgem would identify specific cost categories currently recovered through the standing charge — likely the policy costs (WHD, green levies, SoLR) rather than the underlying network and metering costs — and shift them into the unit rate. The standing charge falls but does not disappear. Consumers using less energy pay less overall; consumers using more energy pay more. The redistribution is modest because the costs being moved are a fraction of the total standing charge.

Who wins: Low-consumption households, including pensioners, second-home owners, and those with solar panels who currently see little bill reduction from low usage. Who loses: High-consumption households, particularly those with electric heating, heat pumps, or medical equipment requiring continuous power. Disability charities flagged this directly in responses.

#### Zero standing charge option within the price cap

The option Ofgem signalled it would take forward. Rather than abolishing standing charges for all tariffs, this would create a regulated zero-standing-charge tariff alongside the existing default tariff. The full cost of network access, metering, and policy levies would be recovered through a higher unit rate on the zero-standing-charge tariff. Suppliers would be required to offer this as an option; consumers could choose it or stay on the standard tariff.

Who wins: Consumers with genuinely low or zero consumption — empty properties, holiday homes, low-use elderly households. Also benefits solar households who export more than they import, since they avoid a fixed daily cost that cannot be offset. Who loses: Any household choosing the zero-standing-charge tariff but consuming at or above average levels would pay more than under the standard tariff. The crossover point depends on where the unit rate lands. The risk is adverse selection: low users migrate to the zero-standing-charge tariff, leaving high users on the standard tariff with a standing charge that now recovers a smaller cost base — potentially pushing it *up* for those who remain.

#### Abolition of standing charges entirely

What the majority of the 5,000+ consumer respondents demanded. All fixed costs would be recovered through unit rates. No household would pay anything on a day it uses no energy. This is the cleanest option from a public messaging perspective and the most disruptive from a cost recovery perspective.

Who wins: The same groups as above, but more so. Zero-consumption days genuinely cost nothing. Who loses: High-consumption households absorb the full rebalancing. More significantly, network companies lose the certainty of fixed cost recovery. Networks have largely fixed costs — maintaining wires and pipes does not become cheaper because a household uses less energy. Recovering fixed costs through a variable charge creates revenue volatility and, in the long run, incentivises networks to resist connections that increase their cost base without proportionally increasing throughput. Suppliers also raised concerns: a zero-standing-charge tariff makes it harder to recover the genuine per-customer costs of metering, billing, and customer service.

#### Broader review of network cost recovery

Not a standing charge option per se, but Ofgem flagged that a fundamental review of how network costs are allocated across users is in scope. This is the structural question underneath the standing charge debate. Currently, domestic consumers pay network charges bundled into their retail tariff. The split between fixed and variable recovery, between domestic and non-domestic, and between transmission and distribution is determined by charging methodologies that predate the current system stress. Ofgem is signalling that tinkering with the standing charge may not be sufficient if the underlying cost allocation is wrong.

What the responses revealed

The response summary is worth noting for what it tells you about the political economy of this issue.

Consumers (5,000+ responses): Overwhelmingly demanded abolition. The arguments were intuitive — why should I pay for energy I don't use? — and politically resonant. Many cited solar panels as a specific grievance: they invested in generation to reduce bills but the standing charge means the reduction is capped. Several campaign groups coordinated email responses.

Suppliers: Cautious. Concerns about cost recovery, adverse selection between tariff types, and the complexity of offering multiple regulated tariff structures within the price cap framework. Suppliers also noted that standing charges are *their* charges, set within the cap — Ofgem can change what goes into the cap calculation but cannot directly set individual supplier tariffs.

Charities and consumer bodies: Split. Recognised the case for reform but worried about the distributional impact on vulnerable high-use consumers — particularly disabled households with medical equipment, electric wheelchairs, and high heating needs. Several bodies argued that an energy social tariff (a discounted rate for vulnerable consumers) should be developed alongside any standing charge reform, to prevent the rebalancing from hitting those least able to absorb it.

Industry and networks: Concerned about revenue stability. Fixed costs recovered through variable charges create forecasting problems and, over time, distort investment signals.

The economics underneath

The standing charge debate is a textbook case of a visible cost drawing political attention while the structural problem goes unaddressed. Standing charges are high because the costs loaded onto them are high. Moving those costs to unit rates does not reduce them — it changes who bears them. The aggregate consumer bill remains the same.

The deeper question is whether some of these costs should be in energy bills at all. Multiple respondents — and Ofgem itself, obliquely — noted that policy costs like the Warm Home Discount and SoLR levies are effectively taxes on energy consumption, and that funding them through general taxation rather than energy bills would be both more progressive and more economically efficient. That decision sits with Treasury, not Ofgem, and there is no indication it is forthcoming.

The zero-standing-charge option is a pragmatic middle path: it gives consumers a choice without forcing a system-wide rebalancing that creates losers among high-use vulnerable households. But it introduces complexity into the price cap framework and creates the adverse selection problem noted above. Ofgem will need to design the cap methodology carefully to prevent the two-tariff structure from becoming unstable.

How to respond

This consultation closed on 21 September 2024. Ofgem received over 5,000 responses. The non-confidential responses and a summary document are available on the consultation page.

Next steps: Ofgem confirmed it will consult in early 2025 on a specific zero standing charge option within the energy price cap. That consultation — when published — will be the decision-shaping moment. This options paper was the scoping exercise.