Thousands of households in the UK could save money on their energy bill this winter if the Government pushes ahead with abolishing standing charges for gas.
Prime Minister Andy Burnham said on Wednesday that he had asked the Chancellor John Healey and Secretary of State for Energy Security and Net Zero Miatta Fahnbulleh “to look at whether we can remove standing charges from gas bills”.
The move would remove the component of households’ dual fuel bills which is charged regardless of how much energy the household is using, meaning those who use the least energy would benefit the most from the change.
This comes after typical household energy bills increased to £1,723 this month but are expected to increase further to possibly more than £2,000.
Experts told The i Paper that savings will be limited by the cost being passed on to the unit price of gas, meaning those with heat pumps will still save money compared to those with gas.
How much could you save?
The average gas standing charge, set by the energy regulator Ofgem as part of its price cap, is 29.68p per day. This means a household that uses gas pays this much every day before any charge for gas used is added.
This means that an average household spends £108.33 a year on gas standing charges at current rates. The price cap is expected to go up when it is reviewed in January, meaning the cost of the charge would go up.
To pay for abolishing the standing charge, gas companies would need to increase the unit price households pay for gas, so households wouldn’t see the full figure taken off their bill.
According to energy research centre Nesta which has proposed abolishing the charge, the typical dual fuel household would save £27 a year under this system.
Who will save the most?
Poorer households would benefit more from this change than better off households because they will hold off on switching on their heating and using power to try and save.
“Removing the standing charge tends to help lower income households, because they tend to use less gas, and therefore, a bigger share of their bill is the standing charge,” said Andrew Sissons, director of sustainable futures at Nesta. “It means that households that use a lot of gas will probably pay a bit more.”
Nesta estimates that 84 per cent of the poorest households would be better off, compared to only 23 per cent of the wealthiest. The median household in the poorest income group would save £46 per year, compared to £33 for the next poorest.
Will heat pump owners benefit?
Even households who have a heat pump installed and run their heating and hot water off electricity could benefit from the removal of standing charges, according to heat pump installer James Stalker.
“If you have a heat pump you’re generally not using gas, but some people still use it for cooking,” he said. This means people with heat pumps are using a relatively small amount of gas, meaning the proportion the standing charge makes up is higher and their saving is likely to be more significant.
For those who haven’t yet installed a heat pump, the removal of the charge could make it a “more attractive” option, according to Nesta.
“Taking the standing charge off gas and loading it onto the unit price makes every unit a gas boiler burns more expensive,” said James Stalker, a heat pump installer and NAPIT at Eco Pro Renewables. “Heating is where most of a home’s gas goes, so the households with the most to gain from that change are the ones who switch their heating to a heat pump.”
Electricity is generally more expensive than gas per unit, but because heat pumps are more energy efficient, households can still save money switching.
“Heat pumps typically use about four times less energy than a gas boiler, so if electricity is less than four times more expensive, you can save quite a bit on your energy bill by switching,” said Sissons.
The gas to electricity price ratio is currently at 3.3, and removing the standing charge would bring it down to 2.97, according to Sissons, meaning households would save more by switching to a heat pump.
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