Ofgem sounds alarm: Energy debt hits £2.6bn

Ofgem has launched a consultation to address the rising issue of energy debt, with potential measures including a temporary adjustment to the price cap to mitigate energy company insolvency risk

Ofgem has initiated a consultation in response to the alarming rise in consumer energy debt.

Figures obtained by Ofgem this summer reveal that energy debt has reached a record high of £2.6 billion.

This concerning escalation is attributed to surging wholesale energy prices and broader cost of living challenges.

Under the current price cap regulations, energy suppliers can recover their efficient costs, including unrecoverable debt, through their service pricing.

However, as bad debt levels continue to rise, Ofgem is now considering introducing a one-time adjustment to the price cap.

This adjustment aims to mitigate the risk of energy companies going bankrupt or exiting the market due to insurmountable debt.

Analysis within the consultation suggests that such an adjustment could result in an average temporary increase of up to £17 per year (approximately £1.50 per month) in consumer bills.

This move is intended to offset the potential consequence of higher costs and deteriorating service standards for customers if energy suppliers find themselves in financial peril.

This was evident during the recent energy crisis when nearly 30 suppliers went out of business, leading to an additional charge of £82 for every energy customer to ensure households remained connected.

Tim Jarvis, Director General for Markets at Ofgem, said: “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.”