Energy consultancy Cornwall Insight says steep increases in standing charges will put UK businesses under increased financial pressure.
Standing charges – costs paid regardless of energy consumption or the time it is used – are set to remain higher as a proportion of energy bills compared with the start of the decade, and Cornwall Insight forecasts that this will last until 2030.
As a result, energy saving strategies, like using electricity at times of low demand, will be less effective in lowering energy bills. Analysis published as part of Cornwall Insight’s Business Energy Cost Forecast shows that standing charges for a typical small industrial consumer, such as retail and leisure sites with an average annual electricity demand of 2.33GWh, have increased from £31 per day (3.2% of total energy bills) in 2018 to £190 per day (12.8% of total energy bills) in 2024.
The consultancy projects that by 2030 this will reach £211 per day, representing about 13.5% of bills. The increases reflect the ongoing Targeted Charging Review (TCR), which is reshaping how network charges and other system costs are collected, and Ofgem’s price control review.
Lower unit charges mean that a larger proportion of costs have to be paid through the standing charge, which is the result of the regulator’s aim to ensure all electricity network users pay a fair share. Previously, businesses that lowered consumption and reduced use at peak times paid less.
While opportunities to reduce costs and generate revenue are still present, such as through the demand flexibility service, the effectiveness of traditional practices like triad avoidance—previously used by businesses to cut transmission network charges by reducing demand during the three highest-demand half-hour periods—has been impacted.
On 12 December, Ofgem published an update on its review of standing charges, which heard tens of thousands of consumers express dissatisfaction with the current system, stating standing charges are “unneeded, unfair and confusing”.
Ofgem said it wants to look at new options that give consumers more choice in the market and in early 2025 it will consult on a zero standing charge option within the price cap (which Cornwall Insight recently predicted would increase again in April).
Dr Craig Lowrey, principal consultant at Cornwall Insight, said increasing standing charges risk wiping out incentives to adopt smarter energy strategies, leaving businesses struggling to cut bills.
He continued: “Given that energy bills are already a significant strain on bottom lines, the standing charge levels are a further challenge to businesses and their ability to manage their energy costs and use, with potential impacts on their wider operation.”
