Britain’s energy regulator Ofgem has announced a wide-ranging review into how energy system costs are allocated and recovered, as the country transitions toward a low-carbon, renewables-based network.
The Cost Allocation and Recovery Review (CAR), unveiled on Tuesday, will examine the entire energy system—from power generation through to household billing—and explore alternative pricing models aimed at improving fairness and transparency for consumers.
“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.”
Currently, system costs—covering infrastructure, energy delivery, and operational services—are recovered through fixed standing charges and unit rates on consumer electricity and gas bills. Ofgem said it is not proposing any specific changes at this stage but is seeking input from stakeholders, including consumer groups, industry representatives and policymakers.
The regulator noted that fixed system costs are likely to rise in the coming years due to the need for upgrades to energy infrastructure. At the same time, unit rates could fall as the energy mix becomes less reliant on volatile gas markets.
“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,” Brearley said. “However, fixed costs—such as those needed to upgrade the energy network—could rise.”
The review will consider how different billing structures might affect various user groups, particularly vulnerable and low-income households. Ofgem also said it will coordinate closely with the government, recognising that broader decisions—such as whether energy system costs are recovered through consumer bills or taxation—remain within the remit of ministers.
“We can’t make costs disappear,Ofgem said in a statement. “But how bills are structured can have a big impact—especially where high upfront costs could pose a barrier to energy use.
The review comes amid growing calls for reforms to how energy bills are calculated, with consumer groups warning that the current model may disproportionately impact those with lower energy consumption or limited financial flexibility.
