Ofgem Pondering Price Increase to Save Suppliers

Ofgem, the UK's energy industry watchdog, is contemplating a £17 annual increase on household energy bills. This decision is a response to growing energy debts, which have reached a staggering £2.6 billion. These debts result from escalating wholesale prices and mounting cost of living pressures. While this potential rise might be concerning for many, the intention is to safeguard consumers and the energy market.

The Challenge

The energy market is highly sensitive to fluctuations in prices globally. In 2021, prices began to rise, causing around 30 energy suppliers to go bust. This instability led to an additional £82 charge on every energy customer's bill to ensure that households weren’t disconnected.

Tim Jarvis, Director General for Markets at Ofgem, said: “We know that households across the country are struggling with the wider cost of living challenges, including energy, so any decision to add costs to the price cap is not one we taken 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."

The Costs

Under Ofgem's most recent price cap, which affects 29 million households in England, Wales, and Scotland, the annual energy bill for a typical household is £1,923. Although this is £577 lower than the previous winter, it still represents a significant financial burden on households.

To make matters worse, the Government's support last winter, offering £400 for each household, will not be repeated this year, and analysts are predicting further bill increases in January 2024.

The Opinions

Dame Clare Moriarty, Chief Executive of Citizens Advice, has expressed concern for billpayers: "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."

Chief Executive of charity National Energy Action, Adam Scorer, said: "The enormous amount of energy debt is crushing vulnerable households. The 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."

A Department for Energy Security and Net Zero spokesperson said: "We would encourage anyone worried about their energy bill to speak to their supplier. We are supporting the most vulnerable this winter, by helping an estimated three million families with £150 off energy bills through the Warm Home Discount.

"This comes on top of £900 cost of living support for those in need - as well as nearly £40bn provided last winter to cover around half a typical household's energy bill. We continue to keep all options under review while ensuring competition can return to the market to offer the best value for all."

The Situation

The proposal to increase energy bills by £17 a year may not be welcome news, especially when households are already grappling with financial burdens. However, Ofgem's decision comes from a drive to maintain a stable energy market and prevent even more significant costs for consumers should suppliers go out of business.

The regulator aims to consult with industry stakeholders, consumer groups and the public to determine the fairest way to implement this measure. Whatever the outcome, it will be important to strike a balance between protecting vulnerable households and maintaining the sustainability of the energy sector.

How Can I Save Money on Energy Bills?

With instability over energy security and costs, consumers are looking for ways to save money on their bills more than ever. At UKPower, we can help you compare gas and electricity suppliers to find the cheapest energy prices, switch to a better deal and cut the cost of your energy bills.

Click here to run an energy price comparison, and see if you could be paying less for your gas and electricity.

---