Ofgem is launching a sweeping review of how energy costs are shared between households and businesses – a move that could reshape the way millions of Britons pay for gas and electricity.
The Cost Allocation and Recovery (CAR) Review, will explore whether the current pricing structure – made up of a fixed standing charge and a unit rate – remains fair in a changing energy system.
The regulator is asking for views on alternative pricing models, with no firm proposals yet – but it signals a shift towards greater scrutiny of how fixed costs are handled as the UK transitions to a net zero energy grid.
Chief Executive Jonathan Brearley said: “As we transition to a more secure, homegrown, renewables-based energy system, unit costs may decrease due to reduced reliance on expensive and volatile gas. However, fixed costs – such as those needed to upgrade the energy network to deliver cleaner and more secure power to our homes – could rise.”
He added: “This shift in the make-up of system costs means we need to review how we pay for energy and carefully consider how these costs are distributed.”
Ofgem’s move comes amid growing consumer frustration over standing charges, especially as electricity takes up a larger share of household budgets.
The regulator noted there’s no consensus yet on a better alternative, but the current approach risks hitting low-income households hardest as fixed costs rise.
Brearley added: “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 review will look at the entire system – from generation to consumption – including the implications of growing electricity use from heat pumps and electric vehicles and how more consumers are shifting usage to different times of day.
Ofgem stressed that decisions around taxation or targeted financial support remain with government, however this review is the next step in developing fairer pricing for a changing energy system, ensuring more consumer choice.
The regulator pledged to work closely with ministers to ensure a joined-up approach and to protect consumers as the country decarbonises.
Are energy bills fair asks Ofgem? appeared first on Energy Live News.