Our response to the Energy Security and Net Zero’s call for evidence on energy bills for domestic consumers

We consider that there is a good justification for removing standing charges from energy bills due to the inherent unfairness that such charges can create. As is well documented, these costs form a disproportionate part of the overall energy costs for customers with very low consumption, making higher energy costs hard to avoid. It’s important that low users, many of whom are likely to be in vulnerable circumstances or facing affordability challenges aren’t disproportionately impacted. 

There could be fairer ways to allocate these costs, ideally delivered in combination with a targeted social tariff. For example, via a flat rate addition to the unit cost for energy. This would allocate costs more fairly between low and high energy users and could be supported by mechanisms such as a social tariff or ‘energy prescriptions’ for low income or vulnerable customers. 

In addition to removing standing charges from domestic energy bills, we consider that consideration should be given to ensuring greater fairness for microbusinesses and SMEs, for whom standing charges and unit rates are unregulated and often unaffordable.

While we recognise the need to ensure that the costs of servicing different payment methods are appropriately covered, we don’t consider it to be appropriate for companies to be permitted to penalise customers by applying lower charges to those who pay by direct debit.

Direct debits are generally a fixed amount each month that may bear little direct relation to the amount of energy used. But paying for actual usage is often more expensive, even when standing orders are used.

In its own consideration of this issue, the energy regulator, OFGEM, acknowledges that many customers choose not to use direct debit as a payment mechanism to give themselves more control over their monthly payments. This is particularly relevant given that direct debit levels are set by energy companies, at times without adequate discussion with customers. This has been evidenced by the large amounts of customer credit energy suppliers who’ve been able to build up using direct debits.

While discounts on energy for those who live close to energy infrastructure are one option that could and should be considered, we’d also stress the value of wider community support schemes in this regard.

Due to the nature of the transmission network, community ownership and electricity bill discounts could be challenging to implement and may not provide the community benefit that we would want to see. 

Wider community benefit through, for example, the funding of community projects should be a priority rather than direct payments to landowners or individuals. Taking this approach recognises that communities in the broader sense are impacted by the rollout of energy infrastructure and that funding wider community projects (that are proposed by communities themselves) provides opportunities for co-benefits and socioeconomic multiplier effects. 

It’s essential that each benefits package is bespoke to the impacted community and is designed by the community itself with support provided by impartial and expert advisors. Taking this approach will help to ensure that projects progress quickly, gain buy in from local communities, increasing the deployment of cheap renewable generation and delivering greater interconnection, reducing consumers bills and offsetting the limited investment required to support such an advice and support service.

We know from our work helping to deliver the Scottish Government’s CARES programme that impartial and expert support is crucial when assisting communities in their engagements with developers and would note that there are several tools and approaches that can help to ensure that appropriate community benefits are put in place. This includes: 

• Interactive community benefit maps like the CARES Community Benefit Register.
• Local energy plan methodologies and supporting toolkits, such as those developed by Local Energy Scotland under the COBEN programme.
• The use of Power Purchase Agreements for small-scale renewables, such as the approach pioneered by Egni Coop in South Wales. Our organisation and the Welsh Government Energy Service played a significant role in enabling this programme of work. 

In addition, we produce an annual report for the Scottish Government on community and locally owned renewable energy installations.  The most recent report includes, as far as possible, all installations known to be operating, under construction, or in earlier stages of development as of 31 December 2022.  

We should be happy to provide further information on these initiatives if this would assist the Committee in its work.  

We don’t consider it right to expect those in more remote areas of the country pay higher amounts in standing charges. Historical reasons for regional variations in electricity standing charges in the UK include:   

• differences in local infrastructure costs 
• varying network distribution costs (driven by geography, population density etc)
• the cost of maintaining legacy infrastructure and systems

The current regional variations in electricity standing charges were designed for the system of the 1990s, with a few centralised power stations that distributed power across the UK. This is no longer the case, with more renewable energy being generated regionally and locally, removing the argument that standing charges need to be higher in regions such as Scotland to accommodate higher distribution costs. The dynamic, and therefore questions of fairness, are very different now and need to be addressed.

For example, historically the North of Scotland has paid higher standing charges and unit costs on the basis that the transmission and distribution costs in that area were higher. The North of Scotland is now a significant net contributor to renewable generation and as a result this infrastructure facilitates cheaper electricity in the rest of Great Britain, which should be more fairly reflected in standing charges across Great Britain as a whole.

Areas that are net generators of renewable energy should, as a matter of fairness and as part of a just transition to net zero, should see this GB-wide value fairly reflected through reduced costs. 

We’d note that the principle of reducing costs to consumers on the basis of the inherent value to the grid from local supply was accepted as long ago as the 1940s, when the Hydro Benefit Replacement Scheme was put in place to offset the costs of providing power to the North of Scotland by balancing the benefits from the hydro stations and dams in that area. 

We believe that the implementation of a social tariff should have two primary outcomes: 

• To reduce the cost of energy bills for a subset of vulnerable consumers, allowing those in fuel poverty to afford an essential service.
• To incentivise people to be as energy efficient as possible.

In addition, a social tariff should be implemented in such a way that allows people to benefit from flexibility. This could involve applying social discounts to the standing charge or on a percentage basis to electricity consumed during off-peak hours, thereby avoiding distorting signals to the electricity grid about supply and demand, while providing price support to those who need it. 

In this regard, we would draw the Committee’s attention to a report published by Citizens Advice on 23 January 2024 looking at how low-income households can be supported quickly with an interim measure at a level targeted to their needs.