SFHA responds to Ofgem call for input on standing charges

In response to a 'call for input' by Ofgem, SFHA has urged a detailed review of energy standing charges given the significant rises seen over recent years. However, SFHA has also raised concerns about the risk of unintended consequences of moving these charges to unit rates for some households, particularly those in rural areas or with high heating needs.

Standing charges - the fixed component of an energy bill - are a burden to many households as they need to be paid regardless of how much energy is actually used. In response to concerns, the regulator Ofgem is considering a review of these charges which could see these fixed costs moved to unit rates.

Because standing charges have a disproportionate impact on households with lower incomes and who use less electricity, there is a strong argument that it would be fairer to increase unit rates to lessen the burden on bill payers.

While this would be the case for a majority of households, SFHA has raised concerns about the risk of unintended consequences, which could see rural households, people reliant on electric heating, and those who require advanced heating regimes potentially worse off.

As the Changeworks report A Perfect Storm - fuel poverty in rural Scotland makes clear, rural and remote households in Scotland face higher living costs and have a higher-than-average fuel spend. For households in these areas which rely on electric heating, an increase in unit rates could lead to even higher bills. There is also an additional unfairness that the report points out - that while these communities pay more for energy, they are in the closest proximity to renewable energy generation sites but rarely enjoy any benefit.

If a social housing tenant required an enhanced heating regime, for example for health reasons, they could also face higher bills if they had an electric heating system as they would not have the option to cut consumption.

These considerations mean that a move from high standing charges to higher unit rates could be more complex than expected. Therefore, any review by Ofgem should take into account the impact on social housing tenants, and others, who could be disproportionately disadvantaged by changes.

While a detailed review of standing charges would be useful, we ultimately need wider reforms to the domestic energy market to support people struggling to afford their fuel bills. The introduction of a targeted support mechanism in the form of a social tariff for energy would provide a valuable safety net for those in or at risk of fuel poverty.

Alongside a social tariff, consideration should also be given to a gas-equivalent tariff that would help to support people facing higher energy costs as a result of their reliance on electric heating systems; something particularly relevant to rural and remote communities. At the same time, a gas-equivalent tariff could also provide an incentive to transition away from fossil fuel boilers to clean heating alternatives.

SFHA's recent report on the impact of the cost of living on social tenants sets out the financial pressures facing tenants across Scotland. A review of standing charges is welcome, but this will have to be done with care so that no households are left worse off.