Ofgem proposes new 'no standing charge' Price Cap – but Martin Lewis warns vulnerable customers need to be opted in or it won't work

It is a more detailed explanation of its December 2024 plans to introduce a new 'low or no standing charge' Price Cap option, to sit alongside the existing Price Cap. The new tariff that anyone could opt in to would have lower daily standing charges, but that saving would be made up for by a higher cost for each unit of electricity and gas used.

Martin Lewis: 'There is one big hole in what's currently proposed'

The new option is one Martin has long campaigned for – see Martin's 'Will energy standing charges be cut?' blog for more info. 

What Ofgem has proposed in more detail 

The new consultation lays out the options currently under consideration for how a low or no standing charge Price Capped tariff would work in practice. These will be consulted on until March 2025.

However, Ofgem says in its proposal that "it cannot remove the costs that make up the standing charge from the system, it can only [be] moved from one part of the bill to another. This means that tariffs without a standing charge will have a higher unit rate. These may be better suited to those who are low energy users but will not automatically equate to a cost saving for all consumers".

The options it sets out include the following versions of the tariff…

• Single unit rate. Here, you'd always pay the same unit rate for gas and electricity, regardless of how much energy you use, plus a zero (or low) standing charge. It's likely the unit rates would be much higher than current standard Price-Capped tariffs.

• Unit rate that falls once you've used a certain amount of energy. Known as a "falling block" tariff, this would see you pay a higher unit rate for your gas and electricity up to a certain level of usage, and then a lower unit rate for everything used after this.
  
  This is currently how energy supplier Utilita's no standing charge tariff works, for example. With its tariff, you pay a much higher unit rate for the first two units of gas or electricity you use each day, then a lower (more normal) unit rate for everything else.

• Unit rate that rises once you've used a certain amount of energy. Known as a "rising block" tariff, this is essentially the reverse of the above option. So, you pay a lower unit rate up to a certain level of usage, then a higher rate for everything else used after that. 

However, while these tariffs will be Price-Capped, meaning the rates will be regulated, the current approach is for this to be an option people will need to actively switch to. This differs from the current Price Cap, which acts as the default tariff for those who haven't switched, who've moved home or who've done nothing when their switch ends. 

Ofgem has said it plans for this shake-up to be in place in time for winter 2025/2026. 

How standing charges currently work 

Standing charges are the daily cost you pay for the facility of having gas and electricity, even if you don't use any. The charges have increased significantly over the past two years and can vary hugely depending on where you live. 

The average household currently pays 61p a day for electricity and 32p a day for gas – adding, on average, an extra £338 a year to your energy bill. And for those who pay on receipt of bills, these costs are even higher. 

We've long campaigned for standing charges to be lowered. In our response to Ofgem's recent "call for input" on standing charges in 2023, we'd suggested that one alternative would be to introduce a new 'no standing charge, higher unit rate' version of the Price Cap instead.