Energy bills could rise by £17 per household to prevent energy companies from going out of business, according to Ofgem.

The energy sector regulator launched a consultation on 12 October into options to protect the energy market and consumers from the risk of rising debt. 

According to Ofgem, energy debt reached £2.6bn this summer, its highest-ever level. This was down to a combination of the increase in wholesale energy price as well as wider cost of living pressures. 

As bad debt levels are expected to carry on rising, Ofgem is considering introducing a one-off adjustment to the price cap. This would be to reduce the risk of energy firms going bust or leaving the market as a result of unrecoverable debt.  

This adjustment would lead to a temporary rise in consumer energy bills of up to £17 a year, or around £1.50 a month, on average. Without this increase, there’s a risk of customers facing even higher costs and poorer standards of service if suppliers go bust, Ofgem notes.

Energy efficiency

The potential for further energy price rises make it even more important to ensure your home heating and appliances are running as efficiently as possible.

UK energy bills have already gone up to compensate for firms going out of business. During the energy crisis, roughly 30 suppliers went bust. Customers were charged an extra £82 to cover the costs of ensuring households’ gas and electricity supplies were not cut off. 

If a cost increase is approved, it would not apply until the April price cap, Ofgem says. This is to protect customers over the winter period, when heating and lighting costs are higher.

Tim Jarvis, Director General for Markets at Ofgem, said the regulator is aware that households across the UK are already struggling with cost of living challenges, including energy.

“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,” he added.

“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.” 

The review runs from 12 October to 2 November. Anyone is invited to share their views by emailing them to [email protected].

The information and feedback gathered will be used as the basis for a statutory consultation and recommendations, released this winter.