Why Standing Charges have nationally increased?

A standing charge is a fixed amount that is applied to gas and electricity bills daily. It covers an energy supplier’s fixed costs to provide energy. This year, standing charges have increased for two key reasons.

Firstly, there has been an industry-wide change in regulatory charges. These changes have been implemented by OFGEM to change the way that balancing, distribution and transmission charges are applied. Certain charges which were previously applied to the unit rate are now applied to the standing charge, which is why, on a national level, we have seen standing charges increase.

Standing charges have increased significantly, for some people, largely as a result of the failure of 29 energy suppliers since 2020. These suppliers were not financially secure enough to endure a volatile market, and this drove up prices for consumers in addition to the wholesale price increases. Over the pandemic, the price cap was lowered because demand from industry dropped as a result of the lockdowns and so energy prices fell. Demand has since grown, driving prices up once more. This has made the increase in standing charges seem even more significant.

The second reason is related to the annual consumption in kWh (technically called the Annual Quantity, or AQ). There is a huge range between parishes which have low increases in standing charges and parishes which have experienced very high increases. Most of these discrepancies are because standing charges, despite the name, are associated with the “AQ” associated with each meter. The AQ is maintained for each meter by OFGEM, usually on an annual basis. The AQ is based on historic consumption. In a very large number of cases, the AQ has moved up sharply from last year, which was based on consumption over the 2020/21 winter lockdown, to a much higher rate of consumption based on 2021/22 patterns as we came out of Covid.

Many meters have been re-rated upwards because of their AQ, and this resulted in very significant increases, particularly for gas as the main energy type used for heating. The reverse is also true: you can be re-rated downwards in the year after you cut back consumption. Therefore, if your energy usage declines this year, compared to the previous year, for example through the implementation of energy saving devices, you should expect a corresponding reduction in that element of your standing charges the following year.