Using data from the summer period, energy regulator Ofgem has confirmed that energy debt levels reached £2.6 billion, the highest figure the body has recorded.
These startling energy debt levels, which are a result of a rise in wholesale energy prices and wider cost of living pressures, could prompt Ofgem into adding a one-off adjustment to the price cap to reduce the risk of energy firms going bust or leaving the market because of unrecoverable debt.
Analysis conducted by the energy regulator has suggested this could result in a temporary rise in consumer bills of up to £17 a year on average. In an statement accompanying its analysis, Ofgem noted that while this would increase consumer prices, such a decision would be: “weighed against the risk of customers facing even higher costs and poorer standards of service if suppliers go bust.”
These developments mirror last year’s events when depleted gas reserves following the COVID-19 pandemic, combined with other factors such as low winds and outages at generators across Europe and particularly cold weather across Asia, turned the gas market highly volatile.
As a result of this, the UK saw nearly 30 suppliers collapse between September 2021 and July 2022, with Bulb also entering Special Administration, as suppliers were caught between the high wholesale prices and the default tariff price cap restricting their ability to recoup costs.
Ofgem revealed that the collapses resulted in every energy customer being charged an extra £82 to cover the costs of ensuring that households were not cut off.
To decide whether there is a need to implement a temporary rise, Ofgem will engage with industry, consumer groups and the public to consider a range of options, including how to spread the cost of any additional allowance between the varying payment methods.
“We know that households across the country are struggling with wider cost of living challenges, including energy, so any decision to add costs to the price cap is not one we take lightly,” said Tim Jarvis, director general for markets at Ofgem.
“However, the scale of unrecoverable debt and the potential risk of suppliers leaving the market or going bust, which passes on even greater costs to households, means we must look at all the regulatory options available to us.”
Jarvis added: “Ofgem cannot subsidise energy or force businesses to sell it at a loss and suppliers must be in a position to offer high quality services to customers. We must consider the fairest way to maintain a stable energy market and we will do this in consultation with all our partners to ensure we are protecting the most vulnerable households.”
Energy retailers commit to reducing energy debt
To counteract the energy debt, 14 energy retail companies have announced their collective commitment to go “above and beyond” current licensing conditions to help households struggling with energy bill debt this winter.
This commitment, which has been dubbed the ‘Winter 2023 Voluntary Debt Commitment’ and created by Ofgem, Energy UK and Citizens Advice, has been signed up to by British Gas, E, Ecotricity, EDF Energy, E.ON Next, Good Energy, Octopus, Ovo, Rebel Energy, Shell Energy Retail Limited, Scottish Power, So Energy, Utilita and Utility Warehouse.
The commitments aim to provide immediate assistance to those in debt and arm people with the knowledge and resources to help them manage their energy bills.
These include pledges of additional financial support, training for frontline staff talking to callers with debt problems, proactively identifying customers struggling to pay bills, continued close working with debt charities and consumer bodies which can offer specialist advice and make referrals and steps to provide suitable solutions for customers in debt, and ensure they are treated fairly at all times.
Daniel Portis, deputy director at Energy UK said: “Our industry recognises the challenges many customers are facing, and suppliers that serve homes across the country have invested in different ways to support them. These new commitments, in conjunction with the ‘SPEAK, SEEK, SAVE’ campaign, are a further step in our collaborative efforts to help customers struggling financially.”