Energy system cost allocation and recovery review

We asked for views on whether there are fairer and more efficient ways to allocate and recover energy system costs from consumers. For example, future approaches could be based on the amount of energy used, time of use, location of use, ability to pay, or another approach.
 
We also asked for feedback on our proposed assessment criteria. These  are efficiency, fairness, practicality, net zero, and economic growth.      

We received 330 responses, with 75% of these coming from domestic consumers. A range of stakeholders responded, including: 

• domestic energy consumers
• charities and consumer advocacy groups  
• energy network operators 
• energy suppliers 
• local authorities 
• trade associations
• non-domestic energy consumers
• academia
• think tanks

Views differed among those who responded on the preferred method for allocating and recovering energy system costs. However, several clear themes emerged.

Affordability remains a major concern. Domestic energy consumers who responded emphasised their views that current charging structures, particularly standing charges, are perceived as unfair and place a heavier burden on low-income and vulnerable households. More than half (55%) of responses from domestic energy consumers called for standing charges to be reduced or removed. These consumers suggested that costs should be recovered through unit rates, so that  those who use more energy pay more.

Consumer groups and charities said that fairness should be our main priority when considering how we should allocate and recover energy costs. Changes should protect low-income users and consumers in vulnerable situations who cannot avoid high energy consumption.

Organisations, including energy suppliers, network operators, as well as some consumer groups and charities favour a cost-reflective approach to recovering costs. They emphasised that charges should accurately reflect underlying energy system costs. Suppliers also highlighted the need for flexibility in how these costs are recovered from consumers. They favour discretion in retail tariff design to enable innovation, competition, and tailored solutions for different customer needs.

More than half of the organisations that responded highlighted the need for greater government-led targeted support to tackle underlying affordability issues. These organisations included consumer groups, energy suppliers, and network operators. Some also suggested moving policy costs to general taxation, which many believe would make the energy system more progressive and transparent. Respondents recognise that decisions about targeted support and funding policy costs through taxation would be decisions for government rather than Ofgem.

Some favoured options aimed at encouraging people to use energy more efficiently. For example, introducing a time-of-use element to either the standing charge or the unit rate (for example higher rates at peak times and lower rates off-peak) or rising block tariffs (where the unit price increases with usage). Others warned these could penalise some households and be hard to understand and implement. 

Domestic consumers that responded, energy suppliers, network operators, trade associations and academic respondents highlighted challenges with income and wealth based standing charges, particularly around privacy, complexity and fairness implications. Consumer groups and charities were more supportive, calling for us to consider these options further.

There was broad agreement that any decisions need to be supported by robust data and transparent application of the assessment criteria. There was also widespread recognition that we must underpin any reforms with clear communication, accessible support, and a commitment to protecting consumers in vulnerable situations.

We are considering all the views and evidence submitted as part of the call for input. This includes the impact of different approaches on different consumer groups. We are also undertaking trials to explore how domestic consumers respond to tariff designs which vary the standing charge based on their electricity usage during peak periods. 

We intend to consult on policy options in spring 2026. We will continue to work closely with government and all stakeholders, including consumer groups and industry, as we further develop this programme of work.