What and Why?
Since the Retail Market Review in 2010, Ofgem have tried to create a fairer and more transparent market for consumers, attempting to limit the amount of profit that can be made by energy suppliers, distribution and transmission networks. Because they are natural monopolies, without any restriction in place, distribution and transmission networks could charge what they wanted and suppliers would not have any choice but to agree. This would then result in huge increases for energy consumers.
As such, Ofgem introduced The RIIO Model, meaning ‘Revenue = Incentive + Innovation + Outputs’. This set a monetary percentage that would be taken from consumer energy bills and given to the distribution and transmission networks. To make this more transparent, these costs, plus others such as meter readings, now have to be expressed as a ‘standing charge’ in pence per day format. This has to appear on every energy tariff in the UK.
0p Standing Charge
Some energy tariffs, you will notice, appear to have a 0p standing charge. This is technically allowed at the present time. This can be seen to be both positive and negative. If you have a property that is uninhabited for the majority of the year, this could be something to look into; however, because the standing charge is set to 0p, the unit rate is usually much higher, so this is something to consider before jumping at the chance of not paying a standing charge. The energy supplier has to pay their standing costs through some means, so don’t hesitate to question their motives in trying to fool you with a 0p standing charge figure.
Here is how much is roughly distributed to the distribution and transmission networks:
- Gas transmission - 2% of consumer bill
- Electricity transmission - 4% of consumer bill
- Gas distribution - 16% of consumer bill
- Electricity distribution - 16% of consumer bill
- To find out more about the difference between distribution and transmission please click the link below:
The RIIO Model
The above percentages that come from your energy bill all come from Ofgem’s RIIO Model, attempting to make the energy industry more simple and transparent for consumers. If you would like to see information and examples for each section of this model, click on the link below:
For further information regarding Ofgem’s RIIO Model, you can click the link below to read their explanation guide.