Understanding Rising Standing Charges in Your Energy Bill

In recent times, many business clients have noticed an increase in their standing charges upon renewal of their energy contracts. Standing charges, a fixed amount paid daily on energy bills regardless of usage, can seem perplexing to many. The rise in these charges stems from several factors, and this blog post aims to clarify why you might be experiencing these changes.

What are Standing Charges?

Standing charges cover ‘non-energy’ costs that suppliers pay on behalf of their customers. For businesses, these mainly include the costs associated with using and maintaining energy networks. These costs encompass the maintenance and upgrading of infrastructure for electricity and gas delivery, as well as the costs of collecting and processing meter readings. Furthermore, standing charges incorporate labour and operational costs, influenced by various economic factors. It’s important to note that standing charges are applicable to both electricity and gas tariffs and can differ depending on your region and energy consumption band.

Why are Standing Charges Increasing?

• Network Charging Reforms: The energy regulator has been reforming network charging, shifting some costs previously included in unit rates to fixed charges collected via standing charges. The changes aim to distribute network costs more fairly among consumers.
• Distribution Network Charges: As of April 2022, distribution network residual charges, which cover the costs of carrying electricity from the transmission grid to your business supply point, have become a fixed cost. This portion of the network costs, previously included in your unit rates, is now collected through standing charges.
• Transmission Network Charges: These charges, related to maintaining and expanding the high voltage network infrastructure, will also move to a fixed cost starting from April 2023. The previous calculation method relied on National Grid confirming the three half-hourly periods with the highest demand across the winter months (Triad Costs), which allowed some businesses to predict and avoid these charges (Triad Management/Avoidance). The shift to fixed charges aims to address this inequity.
• Balancing System Costs: Balancing system charges cover the costs incurred by the National Grid in operating and balancing the grid (matching energy supply and demand). Currently, these charges are variable and can be volatile, especially when balancing energy needs with generation becomes challenging. Starting from April 2023, these charges will move to a fixed cost and will be charged solely to end consumers, as larger generators will no longer be required to pay these charges.
• Inflation, Labour and Material Costs: Network costs have been increasing due to the urgent need for upgrading and expanding our energy infrastructure to meet the country’s net-zero targets. This situation has been exacerbated by inflationary pressures with rising costs for materials and wages.

In conclusion, standing charges have been increasing because of network charging reforms and external economic factors. Without these changes and reforms, the non-energy costs that businesses pay would likely have been higher, with standing charges being lower. Understanding these shifts can help businesses make informed decisions regarding their energy contracts and overall operating costs.

Interested in learning more about how these changes impact your business? Contact us today for expert guidance and assistance in navigating the always complex landscape of energy pricing.