Although utility prices have fallen from their peak, the average UK home is spending a lot more on electricity and gas than it was a few years ago.
Part of the problem is due to the current system’s severe flaws, and the government and energy regulator, Ofgem, appear completely unable to address the core issues.
Low Standing Charge tariffs
One of the biggest costs for homes is the Standing Charge, which is a daily, fixed cost paid per household. This fee covers the basic fixed costs of providing gas and electricity to homes and is the same for every household, regardless of how much energy is actually consumed.
So, in the warm months when heating isn’t required, those with gas boilers still have to pay up, despite minimal usage. As with general bills, the standing charge has gone up a lot over the past few years. While these figures, along with the unit costs for gas and electricity, are capped, the cap is high.
According to the latest figures from Ofgem, the average standing charge, based on the October to December 2025 cap, is £196 per year for electricity (53.7p per day) and £124 per year for gas (34p per day).
That’s only an average, as where you live has a big part to play: those in London pay £46.06p per day for electricity; in North Wales it’s 69.95p per day.
Increases in standing charges, particularly for low-income and/or low-usage households, seem deeply unfair. Ofgem’s approach to tackling this is to require all utility companies to offer at least one lower Standing Charge tariff to customers.
Sound good, right? Well, until you read the small print. Tim Jarvis, director general, Markets, at Ofgem, said in the official press release: “The costs covered by the standing charge ultimately must be paid. They cover the costs of transporting energy to your home or business, and ensure we continue to invest in the networks, so they are future ready, and we have a stable and secure energy system. We cannot remove these charges, we can only move costs around. These changes would give households the choice they have asked for, but it’s important that everyone carefully considers what’s right for them as these tariffs are unlikely to reduce bills on their own.”
More complexity and higher costs
If there’s one thing you can rely on, it’s that the energy companies won’t be expected to make less money, and the money raised by the standing charge isn’t going anywhere under the new plans.
In fact, having yet more tariffs to choose from just seems to complicate the issue and puts the burden in the consumer’s hands. Why should anyone, particularly the most vulnerable, have to work out which tariff is best for them? Energy companies should be responsible for delivering the cheapest bills automatically.
Martin Lewis has labelled the move as ‘disappointing’, and highlights that the published consultation for the new price tariffs doesn’t have a limit on what utility companies can charge, so they could make even more money from increased unit prices. And, Lewis points out, the people most in need of this kind of tariff tend not to switch tariffs.
A broken energy market
Writing about heat pumps and electricity costs a few weeks ago, I pointed out that, despite heat pumps being so efficient, they’re often still more expensive to run than gas boilers.
The fundamental problem in the UK is the reliance on gas-powered plants. Since Russia invaded Ukraine, gas prices have soared. And, the unit price of electricity is set by the most expensive generator to meet demand (marginal cost pricing). So, even when there are plenty of cheap, renewable sources available, gas is still defining the price we pay for electricity.
According to The Guardian, the UK’s electricity price is set by gas 98% of the time (the highest in Europe), with the EU average just 39%.
Yet, as expensive as gas is for generating electricity, it’s actually cheaper to buy gas than electricity at home. That state causes some odd discrepancies.
Someone that I know has had a large solar installation running across a south-facing roof. This generates a large surplus of power. And, how is that surplus used, you might ask? Is it for running a clean, efficient heat pump or, at least, an immersion heater for hot water?
The answer is no. It actually works out cheaper to export the electricity to the grid and get paid for it, and then use the income to pay for gas to heat water, making a small profit on top. That is clearly wrong.
Electricity prices in the UK attract higher green levies and carbon taxes. Combined with the marginal cost pricing, electricity is much more expensive than gas. Cleaner, cheaper electricity should be a clear government target, even if it’s just for the most vulnerable.
Ofgem’s latest plans don’t really appear to do anything for those who need it, and they don’t appear to give households an incentive to cut back on use. It’s time to stop rearranging the deck chairs.
There are plenty of ideas out there, from shifting the green tariffs onto gas to fully removing gas generators from the wholesale market and increasing the amount of renewable energy. All options have their benefits, but more can and should be done in the home with smart devices.
Smart meters give information on usage and can offer time-of-use tariffs that offer cheaper electricity when demand is lower. Combined with smart appliances that can use this information and run when prices are cheaper, there are ways for households to shift a lot of energy usage to non-peak times. That’s not just good for householders, but also for the grid, as it can reduce sudden demands for energy, which in turn would reduce the number of times that gas power stations need to be fired up.
Of course, a system such as the UK’s utility market is not that easy to overhaul overnight, but something more needs to be done.
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