Blog Post

Ofgem not expected to raise Covid-19 allowance for Energy Suppliers

Richard Simmonds • May 20, 2021

The UK energy regulator, Ofgem has launched a consultation on its plans not to increase the allowance granted to energy suppliers to assist them during the Covid-19 pandemic.

End in sight?

Back in April, Ofgem began giving energy suppliers an allowance in order to help the industry deal with the massive operational and financial costs of the Covid-19 pandemic.

The allowance was just one of many support mechanisms introduced during the height of the pandemic in the UK and has led to a remarkably high survival rate for energy suppliers.

Other means of support were its decision to hike the energy price cap on the most widely used tariffs by 9.2%. This allowed suppliers to recover some of the cash lost during the lockdowns where energy prices crashed to record lows and overall demand fell by 8%.

To calculate the latest energy price cap, Ofgem added an extra layer to the methodology used, but now thanks to the successful national vaccine rollout and falling infection rates the regulator is consulting on whether to ditch this extra layer.

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

Wider economic factors

Another reason Ofgem is looking to end the allowance for energy suppliers are the positive forecasts for the state of the UK economy.

Once feared to be heading towards a massive depression as a result of government imposed lockdowns, the forecasts published by the Bank of England and other institutions are suggesting that the economy will make a strong recovery.

Lockdown measures are expected to fully end in June where consumers are expected to go on a spending spree after a year of pent up demand.

The economy is now forecast to grow at a faster than expected rate later in the year and unemployment is set to remain steady despite concerns of a sharp rise after the furlough scheme comes to an end.

Energy suppliers meanwhile are not expected to incur further costs as a result of the Covid-19 pandemic beyond the assumptions made in April.

Ofgem also stated that consumer debt levels for both credit and pre-payment meter customers are now not expected to be any higher than pre-Covid levels.

The regulator is also proposing to make changes to the existing methodology by adding extra filters to energy suppliers forecast costs and that any further costs as result of the pandemic be spread equally between energy suppliers and their customers.

Also read: Covid-19 has changed the relationship between Energy Suppliers and their customers forever

Need help with your data quality? Contact us for how Dyball Associates Managed Services for Energy Suppliers can assist.

Energy Managed Services