Ofgem’s Zero Standing Charge Tariff Plans: What It Means for Consumers
The way UK households pay for energy could be set for a significant shift. Ofgem, the UK’s energy regulator, has proposed a rule requiring all suppliers to offer tariffs with low or zero standing charges. Rather than a fixed daily fee, these costs would be incorporated into the price consumers pay per unit of energy used.
A consultation is underway to determine how this would work under the energy price cap, with implementation targeted for winter 2025/2026. With more households adopting electric vehicles (EVs) and heat pumps—both of which increase electricity demand—this change could have far-reaching effects.
How Would the New Tariffs Work?
Standing charges currently help cover fixed costs like grid maintenance and support for vulnerable customers. Ofgem’s proposal would shift these costs into the unit rate instead, meaning consumers would pay based on their actual energy usage rather than a daily charge.
To achieve this, three potential tariff structures are under consideration:
Single Unit Rate: A flat price per kilowatt-hour (kWh), ensuring that all users pay the same rate regardless of how much energy they consume. This provides simplicity and predictability but does not adjust for different levels of energy use.
Falling Block Tariff: A higher unit price for the first portion of energy used, with the rate decreasing after a set threshold.This structure benefits high-consumption households by reducing their cost per kWh over time, but lower users may end up paying more per unit overall.
Rising Block Tariff: A lower rate for the first portion of energy used, with prices increasing as consumption rises. This encourages energy efficiency and may be beneficial for low-usage households, but could increase costs for those relying on electricity-intensive technologies such as EVs and heat pumps.
Progressive Pricing: A Fairer System?
By shifting more costs into the unit rate, these tariffs introduce elements of progressive pricing, where costs vary based on energy usage. Supporters argue this could:
Lower bills for households that consume less energy, benefiting lower-income consumers.
Encourage energy efficiency by making excessive use more expensive.
Align with government policies promoting electrification while ensuring grid costs are fairly distributed.
However, the impact will depend on how these structures are implemented. While higher per-unit costs for large consumers may encourage conservation, they could also create challenges for households adopting EVs and heat pumps—which require significantly more electricity. A rising block tariff, for example, could penalize those transitioning from gas heating, making the shift to clean energy less affordable.
Future Outlook
Ofgem’s proposed tariff changes aim to give consumers more choice while ensuring energy costs are fairly distributed. The outcome of the consultation will shape how these tariffs fit within the price cap and influence household energy bills—particularly for those transitioning to cleaner technologies.
As the UK moves toward an electrified future, the challenge will be designing a system that balances affordability, fairness, and sustainability. The next steps will determine whether zero standing charge tariffs can deliver on these goals without unintended consequences.