Revealed: the 14 covert charges keeping energy bills high

Freezing households are being hit by 14 obscure energy charges that are keeping electricity bills at record levels.

The figures are revealed in the latest Warm This Winter Tariff Watch Report by researchers at Future Energy Associates which examines the electricity network costs which are added to customers' standing charges. [1]

Among the 14 charges which get passed onto bills through the Ofgem price cap, customers are hit by costs such as the ‘Non-Locational demand residual banded charge’, ‘Available Supply Capacity Charges’, ‘Electricity Systems Operator Internal Allowances’ and ‘Ancillary Services costs.’ [2]

Also hidden in the charges are so-called “Line Losses” which set out the amount of energy lost while transmitting electricity around the network. These losses are added to consumers’ bills as a set amount, rather than reflecting the actual wastage incurred.

The combined impact of these costs and charges has meant Electricity Standing Charges have surged 119% since winter 2020/21 and account for £194 a year for every household.

Separately, the report reveals rules which allow Distribution Network Operators (DNOs) who maintain and upgrade the grid to keep money charged to consumers but not spent.

The DNOs forecast budgets in advance and overestimation of these costs can mean that DNOs underspend and could potentially profit under a complex system called the “totex incentive mechanism” (TIM). This splits the benefit of any underspend between customers and the DNO.

Between 2015 and 2022, DNOs spent £933 million less than they forecasted, but only gave around half of that money back to consumers. [3]

The new findings also reveal that energy firms have underspent by £2.25bn on plans to upgrade the electricity network. While these firms have overspent on short-term costs, the lack of investment in the grid is one of the reasons that electricity prices remain high despite Britain’s successful renewables industry.

The Warm This Winter Tariff Watch report also paints a poor picture for consumers looking to switch around for the best energy deal. While there are more tariffs on the market, the researchers could only find a handful of deals worth switching to and these all came with complex conditions or caveats.

Two groups which continue to lose out are those who pay on standard credit terms and are subject to a 6.2% premium and those on Economy 7 tariffs.

One EDF overnight tariff, aimed at EV owners, offers an average nighttime electricity unit rate of just 8.00 pence per kWh across all DNO regions. In stark contrast, the Standard Variable tariff, serving as an Economy 7 equivalent from the same firm, imposes a significantly higher night-time unit rate of 16.63 pence per kWh.

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Simon Francis, coordinator of the End Fuel Poverty Coalition, commented:

“The complex world of electricity pricing should now be firmly in the sights of regulators and ministers.

“There must be a review into how we have arrived at so many covert charges and Ofgem must improve the transparency in the calculation of how our standing charges are arrived at.

“Of particular concern is the system whereby we are paying upfront for vital infrastructure upgrades which could help bring down electricity bills, but which are then not delivered.

“We need a full audit of what has been charged, what has been spent and what is owed back to the bill payer.”

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Fiona Waters of the Warm This Winter campaign, which commissioned the report added:

“The findings of the latest Tariff Watch Report reveal a disgraceful picture.

“Hardup households are being punished multiple times by energy giants. Our energy bills are still forecasted to remain well above 2021 levels for the rest of the year and the vital grid infrastructure upgrades needed to bring electricity costs down are not being delivered.

“Perversely, the failure to upgrade and maintain the grid then results in line losses, which consumers also have to pay for via their bills.”

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Dylan Johnson, Director at Future Energy Associates commented: 

"Ofgem must improve transparency around Distribution Use of System (DuOS) charges. There's a clear need for a centralised repository on their website, detailing these costs, and the formulas used for their calculation.

“Additionally, Ofgem should revisit their methodology for Line Losses, especially as we transition to a more decentralised energy system.

“For instance, in areas like Cornwall during sunny hours, Line Loss calculations must reflect the reduced losses when electricity is generated and consumed locally. This change is crucial for a fair and efficient energy system."

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NOTES

[1] This press release refers to England, Scotland and Wales only. For full details, methodology and sources, the full report is available to media contacts on request and will be published on https://www.warmthiswinter.org.uk/tariff-watch

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[2] Full list of charges, paid on standing charges unless stated:

1. Non-Locational demand residual banded charge - all domestic users contribute to the fixed costs of maintaining the transmission network.
2. Transmission Network Use of System Non-Half-Hourly demand tariff - cost of using the transmission network to supply electricity and factors in the cost of infrastructure investment and the need to ensure network reliability and capacity for future demands. Paid by consumers on unit rates.
3. Distribution Use of System Consumption Charges - charges are based on the electricity consumption of an organisation, with rates varying according to the time of use.
4. Meter Point Administration Number Standing Charges - a fixed daily charge applied per Meter Point Administration Number (MPAN), covering the fixed costs of electricity distribution.
5. Available Supply Capacity Charges - These are levied based on the assigned Available Supply Capacity (ASC) of an organisation, with higher capacities incurring greater charges.
6. Reactive Power Charges - Applied for the reactive power used by an organisation, which is essential for maintaining voltage levels within the distribution network.
7. SOLR Fixed charge - to cover costs associated with collapsed energy firms
8. Excess SOLR Fixed charge - to cover costs associated with collapsed energy firms
9. Eligible Bad Debt Fixed Charge Adder - an additional charge to cover the costs associated with uncollectible debts.
10. Balancing Use of Systems Balancing Mechanism - when there is a variance between scheduled energy generation and actual demand, the Balancing Mechanism activates to maintain grid stability.
11. Ancillary Services costs - this covers a range of services, including frequency response, demand flexibility service, reactive power and reserve services. 
12. Electricity Systems Operator Internal Allowances - Internal costs (allowed revenue) are calculated in the Price Control Financial Model.
13. Balancing Use of Systems Energy Trading Costs - these are costs for trading done with generators outside of the balancing mechanism e.g. forward trading via bilateral agreements.
14. Line Losses - the amount of energy lost while transmitting electricity around the network.

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[3] Electricity North West, National Grid Electricity Distribution and UK Power Networks are the worst offenders. These three companies taken together have a combined underspend of more than £1.1bn.

The reason this is more than the 933m total is that some DNOs - especially Scottish Power Networks - have overspent. Scottish Power Energy Networks (operates MANWEB and South Scotland) does have some of the highest standing charges in the UK.

DNO allowance and expenditure cumulative 2015-16 to 2021-22: