Ofgem has announced a significant review of how it shares the burden of rising energy costs, with some suggestions that wealthier households could be asked to pay more
Wealthier households may be asked to bear the brunt of higher energy bills to protect low-income consumers, as Ofgem announces a significant review of how it distributes the burden of soaring energy costs.
The regulator revealed the review into pricing models on Wednesday, with the aim of changing the current system “to ensure fixed costs don’t disproportionately affect vulnerable and low-income consumers”.
It stated that investment is needed as Britain expands its renewable energy sources, which would allow the country to generate more of its own energy and shield itself from global commodity shocks.
The regulator said this investment would eventually lower unit costs by reducing reliance on imported gas, but fixed costs might rise to fund improved infrastructure, according to the Times, reports the Express.
Jonathan Brearley, Ofgem’s chief executive, remarked: “This shift in the makeup of system costs means we need to review how we pay for energy and carefully consider how these costs are distributed.”
He further stated: “We know customers have real concerns about fairness and transparency in their bills, especially around fixed costs.
“That’s why we’re asking big questions about how and where these costs are shared – and whether there are better, fairer ways to do it.
“The launch of this review is the next step in developing fairer pricing for a changing energy system, ensuring more choice for consumers while protecting those most in need.”
Speaking at an industry event earlier this year, Mr Brearley said: “We want to at least ask the question whether or not we can allocate costs more progressively.
“What [the review] will mean is looking at the bill and saying, ‘Are there ways in which we can attach the price customers pay for fixed costs to income?”.
Ed Miliband, the energy secretary, has set a target to eradicate fossil fuels from the UK’s power network by 2030. Ofgem highlighted that customers were also modifying their energy usage, with electric vehicles and heat pumps increasing some households’ energy consumption.
Chris Norbury, head of E.ON UK, said: “We welcome this review and the potential to reform standing charges.
“Ofgem must also resist the temptation to create a short-term solution that simply shifts these costs between customer groups, overlooking the people who need the most help, and disproportionately helping others.
“The ideal outcome would be an end to standing charges.
“To achieve this, it’s important to really understand what makes up these costs and then decide how best to allocate them.”