Britain’s energy regulator has proposed making changes to energy bills so that households would be charged different rates depending on their wealth or income.
Financial Times reports that Ofgem is floating the idea of a “progressive approach” to the standing charge portion of the bill, as part of efforts to make sure the costs of the shift to cleaner power are fairly distributed.
“We think now is the right time to review how the transition to a greener and more secure energy system should be paid for by consumers,” it said, as part of a “call for input” on a wide-ranging review of energy system costs launched on Wednesday.
Ofgem’s chief executive Jonathan Brearley raised the prospect of such reforms in April.
“Over the next few years, we do expect variable costs to come down, but the proportion of costs that are fixed will rise, which, if unchecked, could exacerbate inequalities that we see today,” Brearley said at the time.
“We want to at least ask the question — whether or not we can allocate costs more progressively.” The ideas are at an early stage, with no decisions made and details not yet fleshed out.
The standing charge is currently a daily flat rate on energy bills, used to pay for costs such as investment in the gas and electricity networks. Critics have long argued it is unfair, as it does not reflect households’ actual electricity use.
The huge investments required in new pylons and cables to move electricity from wind and solar farms is now adding to the impetus for reform.
Ofgem review on Wednesday suggests a range of potential reforms, including charges varying depending on ability to pay.
“For example, if a progressive approach was desired, then energy system fixed costs could be allocated and recovered (pre-distribution) based on a proxy for wealth… council tax is funded in this way,” it said in the document.
It suggests an “incomebased standing charge” and a “wealth-based standing charge”.
This could be combined with other ideas, such as standing charges that vary depending on how much electricity the consumer uses at peak times.
Household energy bills remain a potent political issue for the government despite wholesale energy costs falling since the energy crisis of 2021-22 triggered by global gas supply shortages.
Typical household energy bills remain hundreds of pounds higher than pre-crisis levels, partly due to higher network costs, while household energy debt levels are at record highs.
The Labour government pledged during the election campaign to bring bills down by £300 by 2030, although critics have questioned how it will manage this.
Britain’s price cap on energy bills, which governs typical domestic bills, is currently almost 10 per cent higher than in July last year, when Labour took power.
As well as the investment required in electricity networks, Ofgem is also grappling with changes to the way people use electricity.
More households use solar panels, for example, and more are being encouraged to use time-of-use tariffs exposing them to fluctuations in wholesale prices throughout the day.
𝗙𝗼𝗹𝗹𝗼𝘄 𝗢𝘂𝗿 𝗪𝗵𝗮𝘁𝘀𝗔𝗽𝗽 𝗖𝗵𝗮𝗻𝗻𝗲𝗹 𝗧𝗼 𝗚𝗲𝘁 𝗟𝗮𝘁𝗲𝘀𝘁 𝗡𝗲𝘄𝘀 𝗔𝘀 𝗜𝘁'𝘀 𝗗𝗿𝗼𝗽!
