UK’s energy regulator Ofgem proposes a new system to recover energy network costs through a more progressive tax on higher earners, aiming to create a fairer system for households.
The UK‘s energy regulator, Ofgem, is proposing a new system to recover the costs of upgrading Britain’s energy networks. Under the current system, households pay a standing charge on their energy bills, which includes the cost of maintaining the wires and cables that deliver gas and electricity to homes and businesses. This fixed daily charge is applied to energy bills whether you use any energy or not.
Ofgem is the Office of Gas and Electricity Markets, responsible for regulating the energy industry in the United Kingdom.
Established in 1999, Ofgem ensures fair competition among energy suppliers, protects consumers' interests, and promotes a reliable energy supply.
Key responsibilities include setting price controls, enforcing energy standards, and monitoring market developments.
Ofgem works closely with government agencies, industry stakeholders, and consumer groups to maintain a stable and efficient energy market.
Ofgem’s chief executive, Jonathan Brearley, says that the current system may be unfair, particularly for low-income households who are unable to heat their homes or have high energy demands due to medical needs. He suggests that there could be a more progressive way to pay, where the final cost that households pay is attached to their household income.
Under the new proposals, wealthier households could be made to shoulder higher costs via the standing charge on their energy bills, while low-income bill payers are charged a discounted rate. This would aim to recover the network costs in a more progressive way, with those who can afford it paying more.
An energy tax is a type of levy imposed on the consumption or production of energy sources, such as fossil fuels.
The revenue generated from this tax is often used to fund environmental initiatives, infrastructure projects, or other government programs.
Energy taxes can be applied at various levels, including federal, state, and local governments.
They may also target specific sectors, like transportation or industry.
Examples of energy taxes include carbon taxes and fuel taxes.
The current system has led to cash-strapped households bearing the full brunt of covering energy network costs, even if they cannot heat their homes. Vulnerable consumers who are often high users of energy also end up paying above the odds to maintain the grid. The standing charge has ballooned in recent years, with the average cost rising from £182.27 a year five years ago to £334.07 a year.
Energy costs refer to the expenses incurred by individuals, businesses, and governments for energy consumption.
The primary sources of energy include electricity, natural gas, heating oil, and coal.
According to the U.S. Energy Information Administration, in 2020, the average annual energy expenditure per household was $3,900.
Factors influencing energy costs include location, climate, and energy-efficient appliances.
Ofgem plans to consult the industry on the proposals as part of a root-and-branch review into how the costs of upgrading Britain’s energy networks can be recovered through home energy bills in a way that is fairer. The regulator believes that there are ways to attach the final cost that households pay to their household income, and this will be explored as part of the consultation process.
Overall, Ofgem’s proposals aim to create a more progressive system for recovering network costs, with those who can afford it paying more and low-income households benefiting from a discounted rate.
