Table of Contents
- Ofgem wants to change the amount that households pay in fixed costs
- This could mean that these fees would be reduced by between £20 and £100 per year.
- The cost could simply be passed on to unit rates for gas and electricity.
Fixed charges on energy bills could finally disappear under plans by regulator Ofgem, but it would mean households would pay more for the gas and electricity they use.
Energy bills are divided into unit rates (the price of gas and electricity consumed) and fixed charges (daily rates that are paid regardless of the amount of energy used).
The average fixed charge for electricity is now 60.12p per day, and will rise to 60.99p when Ofgem’s new price cap comes into force on 1 October.
In the case of gas, the typical fixed rate increases by 31.41p to 31.66p.
Big change: Ofgem wants to shift some of the cost consumers currently pay in fixed charges to unitary tariffs, but does this leave some households worse off?
Many households hate fixed expenses because they cannot be avoided.
The impact of high unit tariffs can be offset by using less energy, although this may mean making major sacrifices in electricity and heating use.
But now Ofgem is proposing to cut the fixed charge to remove the part that pays for suppliers’ operating costs.
Typically this works out to around £135 a year for the average household, or 40 per cent of the typical fixed charge of £330 for those who get gas and electricity from the same supplier.
Ofgem is considering shifting part of the average annual fixed charge to the unit rate on energy bills, in documents published today.
But this comes at a cost, as it would affect people with lower incomes who use larger amounts of energy, such as the elderly, the disabled and many people with large families.
Gillian Cooper, energy director at Citizens Advice, said: “Reducing fixed charges will slightly reduce bills for some people, but could mean that households with higher electricity usage, including some low-income families, pay more.
‘The Government must urgently introduce a targeted support bill that reflects the realities of people’s energy needs and protects those at risk of a fixed-charge reform.’
Ofgem said: ‘Shifting all operating costs from the fixed charge to the unitary tariff could have too damaging a financial impact on low-income, high-energy consumers.
“It could also have potential effects on the stability of energy providers. Based on the current allocation of approximately £135, we believe that shifting between £20 and £100 of operating costs from the fixed charge to unitary rates could be achieved.”
What do fixed costs pay for?
Fixed charges cover a number of things, such as the cost of the power companies’ network, such as maintaining power lines.
The cost of failing energy companies is also largely paid for through fixed charges.
There are also other, less financially significant factors, such as the costs of government policies and the implementation of smart meters. The full breakdown is below:
Breakdown: The fixed electricity charge covers things like customer service and the cost of running the power grid and operating meters.
Is it possible to avoid fixed charges?
The only way to avoid fixed charges is to choose an energy deal that doesn’t have them or has reduced rates.
These are currently rare and tend to charge more than average for units of gas and electricity used.
Ofgem wants energy companies to offer more of these deals, to create greater choice and competition.
If companies do not do so themselves, Ofgem will consider forcing them to do so.
The regulator said: “There are already some tariffs available in the market with low or zero fixed charges. However, the number of customers on tariffs with low or zero fixed charges has remained low over time.
‘There are no clear regulatory barriers for providers to offer fixed rates with low or no fees.
“If energy providers do not start to increase the variety of fixed charge tariffs, we could consider obliging energy providers to offer these tariffs to both gas and electricity consumers.”
When would the fixed charges change?
Ofgem is currently listening to views on what to do about fixed charges from energy companies, consumers and others.
Any changes you make will take effect from April 2025.
