Ofgem Considers Raising Bills to Address £2.6bn Energy Debt

The UK energy market regulator, Ofgem, is contemplating a measure that could require households to pay an additional £17 per year on their energy bills.

This proposal is aimed at mitigating the risk of energy suppliers going bankrupt and aims to protect both the market and consumers. Recent figures revealed a staggering energy debt of £2.6 billion during the summer, largely attributed to rising wholesale energy prices and the broader cost of living pressures.

Timeline for the Proposed Increase

Ofgem has clarified that any increase in energy bills will not be implemented until April of the following year. This timing is strategic, intended to shield consumers from additional costs during the winter months.

Tim Jarvis, Director General for Markets at Ofgem, acknowledged the financial challenges households are grappling with, particularly in terms of energy costs. He emphasized that Ofgem does not take the decision to increase the price cap lightly. However, considering the scale of unrecoverable debt and the potential risks of supplier insolvency, Ofgem believes it is necessary to explore regulatory options comprehensively.

Risk of Supplier Bankruptcy

Ofgem has articulated that without a one-off bill increase, there is a real risk that consumers could ultimately face even higher costs and deteriorating service standards should suppliers collapse. The regulator pointed out that when energy prices surged in 2021, approximately 30 suppliers went out of business. This, in turn, resulted in an extra £82 being charged to every energy customer to cover the expenses associated with ensuring that households were not disconnected.

In response to these challenges, Ofgem has stated that it will consult with the energy industry, consumer groups, and the public to explore various options, including the potential distribution of any bill increases. The goal is to determine the fairest approach to maintaining a stable energy market while safeguarding the most vulnerable households.

The Energy Landscape is Changing

Under Ofgem's latest price cap, which affects 29 million households in England, Wales, and Scotland, the annual energy bill for a typical household is £1,923. While this represents a £577 reduction compared to the previous winter, the average annual gas and electricity bills remain historically high. Moreover, government support provided last winter, totaling £400 per household, is not being repeated this year, and analysts predict further bill increases in January.

Challenges for Vulnerable Households

Citizens Advice expressed concern that more households are falling behind on their energy bills, particularly during the warmer months. High energy prices continue to place millions of individuals at risk. Any increase in the price cap to address mounting debts may render bills unaffordable for many. Thus, careful consideration is essential, with a focus on the best interests of all consumers.

The Chief Executive of the National Energy Action charity, Adam Scorer, emphasized that the level of energy debt is substantial and disproportionately affects vulnerable households. He stressed that the government must take action and provide additional support to those at risk during the winter.

What's the Government Response?

A Department for Energy Security and Net Zero spokesperson assured that they are actively supporting vulnerable households this winter. Measures include assistance for around three million families with a £150 reduction in energy bills through the Warm Home Discount. In addition, substantial cost of living support is in place for those in need, along with the £40 billion allocated last winter to cover approximately half of a typical household's energy bill. The government remains vigilant, keeping all options under review while striving to reintroduce competition to the market, ensuring the best value for all consumers.