Ofgem considering Energy Bill hike to help ease pressure on Energy Suppliers

Changes to the Energy Price Cap

Earlier in the year it was announced that the energy price cap would remain unchanged until the end of 2021 in an attempt to aid consumers struggling to pay their energy bills. Now, however, Ofgem is seeking to support energy suppliers that have seen a sharp rise in the number of unpaid energy bills.

Concerns over defaults on energy bill payments were first raised during the first lockdown and were heightened further when the initial furlough scheme was due to end. With the UK economy experiencing its worst contraction in 300 years as a result of the government’s handling of the pandemic, more and more people have lost their jobs and now find themselves in dire financial difficulty.

The growing economic impacts of the lockdowns has seen a spike in the number of households struggling to pay their energy bills which in turn is negatively impacting energy suppliers cash flow and finances.

Worries over more energy suppliers going bust have also heightened causing Ofgem to open the consultation. They are particularly worried as whenever an energy supplier does go bust it is the consumer and other suppliers that have to pay for the fallout.

“In our consultation, we are looking at allowing for an annual increase in costs of £21 per household to allow suppliers to recover these higher costs. Coronavirus has seen more households struggling with energy bills this year, resulting in rising debts with suppliers. We’re now considering how these higher costs for suppliers should be factored when we set the levels of the energy price cap” Ofgem said.

Also read: Energy Price Cap Extended to the end of 2021 to support struggling consumers

Support for Energy Suppliers

Ofgem is also considering other options and could see energy suppliers being allowed to introduce other changes to the amount they will be allowed to charge their customers on default rates.

Wholesale energy prices have increased since the near collapse seen during the first lockdown and costs for suppliers have risen as a result.

The £21 hike to the energy price cap will reduce some of the pressure on energy suppliers struggling to balance the books and handle the challenges posed by the Covid-19 pandemic.

Ofgem hopes that the increase will help recover some of the estimated £200 million of bad debt that is threatening suppliers cashflow. 

Job losses

Like many other industries, the energy sector has experienced a flurry of job layoffs and redundancies.

On Thursday, E.On became the latest energy supplier to announce redundancies with 695 jobs to be cut.

Earlier in the year Centrica cut 5,000 jobs and OVO announced 2,500 layoffs back in May.

An E.On spokesman said: “We have updated colleagues today on plans to continue the transformation of a number of areas in our UK business, primarily our residential and SME supply operation with a small number of roles from our industrial and commercial business.

Also read: Ofgem announces £350 million support scheme to help struggling energy suppliers

Criticism

Not all energy suppliers are in favour of the price rises with Octopus energy being vocal against the plans.

“Legacy suppliers charge long-standing customers hundreds of pounds more than new customers. If they cared about customer, they could handle COVID-19 debt by reducing this disparity, rather than exacerbating it by lobbying for a hike in the price cap. Ofgem’s single biggest success of the last decade has been the price cap- saving billions for customers and finally forcing dinosaur companies to become more efficient. They should resist all attempts to undermine it.”

The consultation will be open until Dec. 21.

Further Reading

Smart Meter Installations hit a record high in October as Energy Suppliers increase efforts

OVO Energy and Social Energy latest UK energy suppliers to expand presence overseas

What does Boris Johnson’s 2030 Ban on new Petrol and Diesel cars mean for energy suppliers?

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