Unit rates and standing charges explained
What is a standing charge?
A standing charge is a fixed cost that remains the same regardless of the amount of energy you consume. A standing charge is used to cover the costs that your energy provider incurs supplying you gas and electricity, for things such as:
- Keeping your house connected to the UK energy network
- Using the pipes and wires across the country that carry the energy needed to power your home
- People coming out to read your meters
- Government initiatives to help people unable to afford energy, and to also help reduce CO2 emissions countrywide
Standing charges apply to both gas and electricity and if you are on a dual fuel energy bill, you’ll get a gas standing charge and an electricity standing charge. You will see these standing charges listed on your utility bill as a daily unit rate.
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Ofgem removed the requirement for tariffs to have a standing charge in 2016, although most energy suppliers still charge one despite them no longer having to.
Going with a tariff that has a standing charge if you are a business is usually a wise move because the amount of energy you use will be significantly higher than your average household. However, they’re also good for households with high energy consumption, because those without standing charges will most likely pay a higher unit price to compensate.
Standing charges are measured daily, and they can vary greatly for both gas and electricity. Typical charges for electricity range between 6p and 60p per kWh per day, and for gas it ranges between 10p to 80p per kWh per day. There is currently no cap on the standing charge, as there is with the kWh on standard variable tariffs, but there are talks to implement them in the future.
What are the advantages of not having a standing charge?
The advantage of having no standing charge on your energy tariff is that you only pay for the energy you use, nothing more. So if you’re away from your place of residence for a while not using any energy, you’ll incur zero fees. If you’re on a tariff that features a standing charge, you’ll find yourself paying the daily fee for gas and electricity despite the fact you’re not using it.
What are the disadvantages of not having a standing charge?
If you don’t have a standing charge included with your energy tariff, you’ll most likely pay a more expensive unit price for both your gas and electricity, which isn’t great if your energy usage is high.
What is a unit rate?
The unit rate is the price-per-unit of the gas and electricity you consume in your household. For example, electricity is measured in kilowatt per hour (kWh), so a unit rate would be the cost per each kWh used!
Unit rates can vary depending on a number of reasons, such as your location, your preferred payment method and what energy tariff you’re on. If your energy tariff does not have a standing charge, your price-per-unit is going to be higher to compensate.
Unit rates and standing charges: How do I know which is best?
The rule of thumb when deciding between a tariff with or without a standing charge is this: if your place of residence is empty for nine months or more, an energy tariff with no standing charge could most likely be your best bet.
Tariffs with standing charges are the most popular for a reason, and while customers are charged even if their premises are empty, the unit price is so much lower that there can be no complaints.
Why do I need to pay a standing charge?
The reason you pay a standing charge is to cover the costs of actually having a running supply of gas and electricity to your home - your unit rates are on top of the standing charge. Essentially, you paying your standing charge is you paying for the privilege of having an energy supply, and is usually paid at a flat rate.
Ofgem removed standing charges as a compulsory added fee back in 2016 following a recommendation by the Competition and Markets Authority. However, most suppliers still add the standing charge to the end of their energy tariffs.
There are some tariffs out there that do not have a standing charge, but the likelihood is your price-per-unit of energy is going to reflect this and will be higher than other tariffs that still maintain the standing charge. So, moving to a tariff that has no standing charge might not actually save you any money, but it might not hurt to check.