Standing charge shake-up may hold back net zero drive, Ovo warns

Shifting bill costs from standing charges to unit rates could deter households from switching to electric heat and vehicles, with knock on consequences for the transition to net zero, Ovo has warned.

In one of a string of concerns raised by the industry with the House of Commons energy security and net zero (ESNZ) committee about the unintended consequences of reforms to standing charges, the supplier said increases in unit rates will have a “disproportionate impact” on households using electric heating.

Ofgem has recently explored shifting 50% of current standing charges onto unit rates in response to growing pressure about the unfair impact of standing charges on some low income customers.

But in its evidence to the ESNZ committee’s latest inquiry, Ovo expressed concern about the impact increased unit charges could have on the bills of those considering, or who already have switched to, heat pumps and electric vehicles.

“The potential impact on bills for this cohort could be a significant deterrent for electrification more broadly, and could hamper the transition to net zero,” it warned.

Should any changes to standing charges be implemented, appropriate safeguards must be put in place for this group of customers and others with unavoidably high usage due to specialist medical equipment.

Increased costs for customers with high energy use for medical purposes is one of the concerns raised by Energy UK in its response to the committee.

Customers living in poorly insulated homes and large families are the other groups that the trade body has raised concerns about.

Meanwhile in its response to the committee, Centrica said prohibiting standing charges for those tariffs not covered by the price cap could unnecessarily impede innovation in tariffs, including deals that support so-called energy as a service propositions through fixed cost subscriptions.

The British Gas owner also said that abolishing standing charges could result in both winners and losers.

To ensure no adverse impact on low income and vulnerable customers, like those relying on dialysis machines, Centrica recommended that the government should implement a social tariff to provide targeted support for these specific groups.