Ofgem considers shifting the cost burden of energy network upgrades to higher earners, with a proposal to make energy bills more progressive.

Under new plans expected to be reviewed this summer, wealthier households in the UK could face higher costs to help fund the country’s energy network upgrades. These proposals aim to ease the financial burden on low-income households by implementing a more progressive charging system.

Ofgem, the UK’s energy regulator, is set to consult with the energy industry about recovering the costs of modernising the nation’s network of cables and pipes through a revised standing charge system. The aim is to ensure that households in higher income brackets contribute more, while those with lower incomes, or those not in work, will be charged at a discounted rate.

Jonathan Brearley, Ofgem’s Chief Executive, explained that the regulator is undertaking a comprehensive review of the way energy network costs are distributed. “This wide-ranging examination will explore whether a more progressive approach to energy bills is possible, linking the final charge more closely to household income,” Brearley stated.

Currently, the maintenance of gas and electricity networks is funded through a standing charge on energy bills, which applies regardless of consumption. This has been a burden for vulnerable consumers, including those who are unable to reduce their energy usage due to medical or health needs, and for cash-strapped households who struggle to afford heating.

The standing charge, which includes the cost of maintaining infrastructure and smart meters, has increased significantly in recent years. In 2018, the average annual charge was £182.27, but it has since surged to £334.07 — nearly 20% of the average yearly energy bill.

Consumer advocate Martin Lewis has described this charge as a “moral hazard,” suggesting that it discourages people from reducing their energy usage. He added that it has become “by far the biggest single subject of complaint” regarding energy bills.

Under the current system, affluent households with solar panels, who use less grid electricity, still pay their share of network maintenance costs. However, those who are unable to reduce their energy consumption due to factors like poor insulation or medical needs end up paying disproportionate amounts.

The issue of network costs became more prominent in 2022 and 2023, when Ofgem moved certain network charges into standing charges. The regulator’s analysis shows that redistributing these costs could potentially reduce energy bills for about 5.5 million low-income households who use less energy. On the flip side, 1.2 million low-income households who consume more energy due to circumstances beyond their control could see their bills rise.

Brearley acknowledged the complexity of the situation, saying that “there are significant pros and cons, as well as operational challenges, before any final decision can be made.” However, the move toward a more equitable energy billing system could help mitigate the rising costs faced by vulnerable groups while ensuring those with higher incomes contribute more to the infrastructure needed to transition to a cleaner energy system by 2030.