Why is our energy standing charge up 192.8% in seven years?

Last weekend, the unit price of electricity and gas in our household fell slightly – as it did for most of Britain.

That’s because the Ofgem price cap of £2,074 now beats the Government’s Energy Price Guarantee, which was set at £2,500.

Shell Energy, my supplier, sent an email to say our new electricity rate would drop from 33.981p to 30.720p per kWh and gas from 10.203p per kWh to 7.398p per kWh.

So far, so good. Wholesale costs are down, and hopefully we’re over the worst of the energy inflation chaos when it comes to how we’re priced by unit.

Standing charges: The prices have rocketed in recent years – and households are just soaking it up

However, the same email informed us the standing charge for electricity per day will remain at 43.65p and gas at 29.11p.

No discount on that part of our bill.

Standing charges have become a bone of contention for households.

Essentially, the standing charge covers the energy supplier’s costs of connecting electricity and gas to your home.

But in most cases, you must pay the charge even if you don’t use any gas or electricity.

This is Money’s Simon Lambert has moved out of his house while he does a self-build project, but says he still racked up £20.92 in standing charges in June.

For some bizarre reason he pays slightly lower standing charges than I do, despite also being on an energy price cap tariff.

Many people have complained about the rising cost of these standing charges in recent years.

At the energy price cap’s maximum levels of 53p for electricity and 29p for gas, this can add £300 to an annual bill.

The new price cap will result in lower bills especially for those households who are energy heavy.

But for those cautious households and people who live in smaller properties, the reductions are likely to be less noticeable – and part of the reason for that is the standing charge.

So, I did some digging. We have been with Shell Energy for seven years – before it took over our old supplier, First Utility.

Logging into our online account, I could go back to the beginning of our bills.

Now, I knew the standing charge element was likely to be up a bit, but what I didn’t expect to work out was a 192.8 per cent rise.

In June 2016, my electricity standing charge was 14.91p per day, and gas at 16.26p. Today, it’s 43.65p for electricity (up 192.8 per cent) and gas at 29.11p (up 79 per cent).

According to the This is Money historic inflation calculator, overall UK inflation up until the start of 2023 is 31.81 per cent – so the standing charge is almost seven times’ higher than overall inflation.

That’s scandalous.

Shell told me: ‘Standing charges are reflective of industry and network charges we incur as a supplier and are set by the regulator Ofgem.

‘There are a number of factors that affect them, including your location and how you pay.

‘The amount suppliers pay the network companies is increasing for two main reasons. First, the cost of maintaining the network has gone up, and secondly there is a cost associated with the collapse of so many energy suppliers in previous years.’

I’m not blaming Shell at all here – they just happen to be my energy supplier and it will be broadly the same no matter who you are with.

The vast majority of the standing charge is made up of two elements: operating costs and network costs.

There are other factors at play too.

The third biggest part of the standing charge is green levies and offering the Warm Home Discount, and the fourth the cost of the controversial smart meter rollout.

The big question is: should standing charges be reduced and instead more be put onto the unit price of energy?

That would mean smaller households, and those who are less energy intensive could potentially save more.

All of us understand that it costs money to stay connecting to the grid – but it’s hard to swallow a near 200 per cent rise in seven years to do so.

Networks need to be maintained regardless of how heavy usage is per household, and meter reading and maintenance must also take place regardless of usage. These steps cost money.

Also, the total collapse of many smaller energy firms means the supplier of last resort charge has also swelled.

All households have suffered as a result of the incompetence involved in allowing unknown fly-by-night firms to set-up, attract customers they shouldn’t have, before founders disappeared into the sunset.

So, is Ofgem going to do anything about it?

It appears not.

It conducted a review and concluded moving costs from standing charges to unit use was not viable.

A spokesman for the energy regulator told me: ‘Following a review of one part of electricity standing charges covering the cost of supplier failures (SoLR costs), we looked long and hard at whether moving the costs from standing charges to usage was the right thing to do, but the numbers just didn’t stack up.

‘Our analysis shows it would disproportionately negatively affect some of the most vulnerable consumers who use high amounts of energy and are least able to reduce their use, such as those with disabilities and the elderly, while resulting in minimal savings for those it would benefit – around just £1 a month.

‘This remains a worrying time for people across the country and we recognise the challenges many are facing.

‘While this was specifically in relation to recovering SoLR costs, we will continue to keep standing charges under review and consult widely on any possible future changes.’

It appears high standing charges are here to stay and there is nothing you nor I can do about it.

If that rate of standing charge inflation continues at the same pace, by 2030, we’ll be paying roughly £1.27 per day for electricity – or £463 a year.

Gas at 79 per cent inflation would be a jump to roughly 52p a day – or £190.

That would mean nearly £600 a year…