Ofgem has launched a major review into how costs are allocated across Britain’s energy system as the country transitions toward a cleaner, renewables-based network.
The Cost Allocation and Recovery Review (CAR), announced today, will examine the full energy system-from generation to household use-and consider new pricing models that could distribute costs more fairly for consumers.
The move follows widespread public concern over the perceived unfairness of the current billing structure, which relies on a fixed standing charge and a unit rate.
“Customers have real concerns about fairness and transparency in their bills, especially around fixed costs,” said Ofgem chief executive Jonathan Brearley.
“That’s why we’re asking big questions about how and where these costs are shared-and whether there are better, fairer ways to do it.”
The review comes as fixed costs in the energy system are expected to rise due to infrastructure upgrades, even as variable unit costs potentially fall with reduced reliance on gas.
Brearley added: “As we transition to a more secure, homegrown, renewables-based energy system, unit costs may decrease due to reduced reliance on expensive and volatile gas. However, fixed costs-such as those needed to upgrade the energy network-could rise.”
Ofgem said that no specific options are being proposed at this stage and the regulator is only seeking stakeholder views.
The review will look at a range of alternatives for cost recovery and assess how future billing models could impact different user groups, including vulnerable and low-income households.
Ofgem said it will work closely with government to ensure approaches are aligned, noting that some decisions-such as whether costs are funded through bills or taxes-remain a matter for ministers.
According to Ofgem, current arrangements mean system costs are paid by users through electricity and gas bills, covering infrastructure, energy and operational expenses.
As the grid becomes more reliant on renewables, the review will help ensure those fixed costs are not unfairly borne by certain groups of consumers.
“We can’t make costs disappear,” said Ofgem, “but how bills are structured can have a big impact-especially where high upfront costs could pose a barrier to energy use.”