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Energy bills could rise to reduce risk of firms going bust

Energy bills could rise to reduce risk of firms going bust
Paloma Kubiak
Written By:
Paloma Kubiak
Posted:
15/10/2023
Updated:
15/10/2023

Households could pay up to £17 more a year to reduce the risk of suppliers going bust or leaving the market as the regulator revealed energy debt reached a record £2.6bn over the summer.

Bad debt levels are expected to rise as households continue to navigate the cost-of-living crisis this winter. See YourMoney.com’s energy bill help guide if you’re struggling to pay.

As a result, the energy regulator Ofgem has launched a consultation on the options to protect the energy market and households from the risk of this of spiralling debt which already stands at its highest ever level.

One option is to temporarily raise energy bills by up to £17 (£1.50 a month) on average which is balanced between the risk of customers facing higher costs and poorer standards of service if suppliers go bust.

However, if given the go-ahead, the actual increase for billpayers would depend on their payment type as the £17 figure is an average.

Under the energy price cap rules, suppliers are able to recoup costs such as unrecoverable debt by adjusting their pricing, Ofgem confirmed. But if approved, any increase would come into effect in April when the price cap adjusts “to protect consumers from rising costs during the winter”.

Ofgem added that during the height of the energy crisis when around 30 suppliers collapsed every energy customer was charged an extra £82 to cover the costs of ensuring that households were not cut off.

‘Fairest way to maintain a stable energy market’

Tim Jarvis, director general for markets at Ofgem, said: “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.

“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.

“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.”

Ofgem said as part of the consultation, it 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.

However, charities are urging the Government to do more to protect vulnerable households this winter.

‘Bills even more unaffordable’

Clare Moriarty, chief executive of Citizens Advice, said:“Even before winter hits we’re helping more people who can’t keep up with their energy bills than ever before. Worryingly, more households are running up energy debts during the warmer months, with some having to borrow money to try and keep the lights on.

“High energy prices mean millions of people remain at risk of falling behind in the coming months. An increase in the price cap to pay for higher debts will make people’s bills even more unaffordable. Any change must be in the best interest of all consumers.

“For now, the Government must provide additional bill support this winter for those at most risk.”

National Energy Action chief executive, Adam Scorer, said: “The enormous weight of household energy debt is crushing vulnerable households. Government cannot just look the other way and hope for the best. This is the highest level of energy debt we have seen, it is growing quickly and concentrated in the poorest households. Energy bills are now on average £800 per year higher than they were at the start of the energy crisis.

“While industry and regulator-led support is welcome, the Government must put in place additional targeted support and establish a Help to Repay scheme and an enduring social tariff.”

As part of a separate review published today, Ofgem confirmed it is not renewing the temporary Market Stabilisation Charge (MSC) which was introduced in April 2022 to stabilise the domestic energy market as wholesale energy prices surged due to Russia’s invasion of Ukraine.

The charge, which requires energy companies who acquire a new customer to pay compensation to the previous supplier, is due to expire on 31 March 2024.