There has ben quite a lot said about the rising cost of standing charges in recent months A recent news article BBC NEWS - Energy standing charges review after anger at rises confirmed the standing charges will now be reviewed by OFGEM.
What are Standing Charges?
Standing Charges are a fixed charge that you pay each day to cover the fixed costs of providing energy to your home. Rather than a single rate that covers the whole of the UK, the UK is split into 14 regions, each has their own standing charge and kWh unit rates.
Map showing the 14 regions in the UK
Standing charge rates vary from the lowest rate of 38.52p per day in London to the highest rate of 62.23p per day in North Wales & Mersey. That means standing charges are 60% higher in North Wales & Mersey than they are in London.
We can't solely look at standing charge rates as kWh unit rates also vary by region too. kWh unit rates vary from the lowest rate of 26.52p per kWh in Yorkshire to the highest rate of 28.43p per kWh in London.
Standing Charge rates by UK region source: Gov.uk
kWh unit rates by UK region source: Gov.uk
The average consumer
It's quite hard to define how much electricity an average consumer uses in a year as every household in different in terms of number of residents, size of house etc. Ofgem help us here as they have defined consumer into three groups, low, medium and high users. Each group has a defined annual kWh unit consumption figure.
kWh consumption by consumer groups. Source: OFGEM
Using the daily standing charge rate and kWh unit rates I've calculated the annual cost of electricity for each consumer group.
Annual electricity cost for low users per region
For low users the highest annual cost is £735.82 in North Wales & Mersey. The lowest annual cost is £652.34 in London.Thats around 13% more for a low user n North Wales & Mersey compared to a low user in London.
Annual electricity cost for medium users per region
For medium users the highest annual cost is £990.16 once again in North Wales & Mersey. The lowest annual cost is £907.61 in the East Midlands. Thats around 9% more for a medium user n North Wales & Mersey compared to a medium user in the East Midlands.
Annual electricity cost for high users per region
For high users the highest annual cost is £1385.80 once again in North Wales & Mersey.. The lowest annual cost is £1282.25 once again in the East Midlands. Thats around 8% more for a high user n North Wales & Mersey compared to a high user in the East Midlands.
If I ranked each user group by region its quite clear the highest costs affect four to five of the fourteen region more than all of the other regions.
Annual electricity cost ranked by region across low, medium high consumption
I feel this only tells half of the story as I've only compared each region within their consumption groups. If you calculate the cost of each kWh unit consumed by each region it starts to show a different story.
Annual electricity cost ranked by combined cost by kWh unit rate within low, medium & high users
The most obvious fact from the above table is that North Wales & Mersey are clearly the worst off region under the current method of charging for electricity. The next worst off regions are Northern Scotland, Southern Scotland, South Wales and Southern Western.
If the kWh unit rates are compared as one group it tells a very different story. Low users actually pay the highest per kWh unit cost than many other consumers, especially where high users are concern as they pay more than high users in every UK region. The difference per kWh is ranges from 2.4p to 9.6p per kWh. In the worse case a low user in North Wales & Mersey pays 30% more per kWh than a high user in the East Midlands pays per kWh. Even in North Wales & Mersey a low user pays 21% more per kWh than a high user in the same region pays.
Annual electricity cost ranked by combined cost by kWh unit rate across all consumers
What are the Solutions?
On 16th November OFGEM launched a review and are asking for people thoughts and opinions on them.
* kWh Unit rate only
One solution that's often put forward is that standing charges should be scrapped and the cost put on kWh unit rate charged. This solution would help low users, which is a good thing as they would be able to reduce their electricity bill by using less, but high users on the other hand could likely end up paying much more. Whilst high users in regions currently paying the highest standing charges may bemoan the high charge of standing charges compare to other UK regions they may actually end up paying more if the standing charge was put on kWh unit rates instead.
* All regions pay the same
One solution would be to change the charging structure so all regions pay exactly the same standing charge and unit rates. This would create a fairer energy system ensuring all consumer pay the same rates and stops the region post code lottery.
* Different charges depending on consumption
Another solution could be to have different unit rates and standing charges depending on how much energy you consume. This would help ensure all users pay a similar overall kWh rate and ensure low users aren't unfairly penalised paying a higher per kWh unit rate than other consumers who use more electricity.
The issue with this solution could be that it may affect t the move towards electrification as that will increase electricity consumption via the take up of electric vehicles and moving away from gas heating to heat pumps.
What about solar owners?
If standing charges were moved onto the kWh unit rate Solar owners would be a big winner as they are likely to use less electricity from the national grid as their solar panels generate their own electricity. Would it be fair that the demographic that has the funds to install expensive solar systems would end up paying very little towards the upkeep of the electricity generation system. Whilst solar owners may not import as much or even nothing from the national grid if they have a home storage battery they would likely use the national grid to export electricity back to it and be paid to do so. The question is should a standing charge be applied to every kWh exported back to the national grid? I'd say it would be a fair compromise. The only people who should not pay anything towards the upkeep of the national grid are those who are fully off grid.
What about Time of Use smart tariffs?
There are now many smart tariffs available where consumer pay less for electricity by using electricity at low demand periods when the electricity has a lower carbon intensity. If standing charges were moved into kWh unit rates should the same amount be applied the lower cost kWh rate as the higher cost kWh rate? Or should it be lower to promote the load shifting from high demand period to promote a greener grid?
Conclusion
Its obvious that something needs to change regarding standing charges. The current system clearly penalises the poorest in society who are likely to be low consumers, and some UK regions more than others, We need a fairer system that spreads the cost across society, but we also have to be careful not to throw the baby out with the bath water. There is no easy solution to resolve this issue. The solution is likely to be complex. What is obvious is there will likely be new winners and losers.
We also need to be careful we don't end up stifling the move towards electrification of our society and increasing renewable electricity generation, as this will help us move away from relying on expensive imported gas as our main source of electricity generation.