ENERGY bills could rise for wealthier households to help poorer ones, under new plans by the watchdog.
Ofgem launched a major review into energy pricing this week, as it wants to ensure “fixed costs don’t disproportionately affect vulnerable and low income consumers.”
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Ofgem is launching a consultation into energy pricing to help poorer householdsCredit: EPA
The regulator is also asking people around the country to give their views on how energy costs are shared.
“We want to make sure energy system costs are shared fairly and transparently – so we’re launching a review of all the costs that make up bills, looking at whether there are better ways to do this,” Ofgem posted to its official X account.
It said the energy pricing system needed to be updated in line with how households’ energy use has changed.
For example, many people are now using new technology such as smart meters to shift their energy usage to different times of the day.
Some households are also using more energy than in previous years, it pointed out, thanks to the rise of electric cars and heat pumps.
As part of the review, standing charges – fixed daily fees added bills by energy suppliers – could also be overhauled, as Ofgem said many consumers had complained the current system was “unfair”.
Ofgem boss Jonathan Brearley said: “As we transition to a more secure, homegrown, renewables-based energy system, unit costs may decrease due to reduced reliance on expensive and volatile gas.
“However, fixed costs – such as those needed to upgrade the energy network to deliver cleaner and more secure power to our homes – could rise.
“This shift in the make-up of system costs means we need to review how we pay for energy and carefully consider how these costs are distributed.
“We know customers have real concerns about fairness and transparency in their bills, especially around fixed costs. That’s why we’re asking big questions about how and where these costs are shared – and whether there are better, fairer ways to do it.
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“The launch of this review is the next step in developing fairer pricing for a changing energy system, ensuring more choice for consumers while protecting those most in need.”
Ofgem said it was only seeking views at this stage and was not giving any recommendations.
Currently, energy prices are made up of unit rates and daily standing charges.
Your unit rate tells you how much you pay for every kilowatt-hour (kWh) of electricity and gas you use, while your standing charge covers the cost of supplying your electricity and gas supply to your home.
The review was welcomed by some experts, who said there was a “clear need” to review how households pay for their energy.
USwitch director of regulation Richard Neudegg said: “The energy system is changing rapidly as we use more and more clean power, so the way we pay for it needs to change as well.
“There is a clear need to look at how pricing and the price cap works.
“As part of our move towards Clean Power 2030, it’s vital to ensure consumers get real rewards for managing their consumption, ensuring standing charges are reasonable, as well as securing support for the vulnerable.
“These goals could be achieved within tariffs that consumers choose to be on, considering how the price cap itself works, and or through various support and grant schemes.
“There are no firm proposals from Ofgem on particular shifts to pricing approaches yet, but it is good to see the regulator opening up the thinking on how this could best work.”
However, others argued the plans don’t go far enough to protect vulnerable families.
Heat Trust boss, Stephen Knight, said: “Forthcoming regulation of heat networks is great news for consumers, but Ofgem’s proposals around price regulation do not yet deliver the level of fairness or price protection that heat network customers deserve.
“Many households are still paying twice as much for heat as those using gas boilers – and that simply isn’t sustainable.
“We need urgent action from government to rein in unregulated costs and reduce unacceptable levels of heat loss from poorly performing systems.
“Unless these issues are addressed, we risk undermining public confidence in heat networks at a time when they need to be a key part of our low carbon future.”
He added: “We urge government to go further than these proposals, engage more closely with consumers and their representatives and deliver the strong, enforceable protections that heat network users urgently need.”
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