‘Energy debt’ is the term given to the situation when customers owe their electricity and gas suppliers money for energy they have already consumed. The recent energy price crisis, alongside a sharp rise in the general cost of living, has led to more energy debt than ever before. However, help could be at hand to consumers attempting to cope with energy arrears, as part of a broader reform of how suppliers charge their customers.
In this article, we’ll tell you more about them.
Debt relief scheme
The total amount of energy debt in the UK is currently a staggering £3.8 billion, the majority of which was built up during the recent energy price crisis. To alleviate the situation, Ofgem has proposed a scheme to wipe up to £1 billion off this debt, giving customers a chance to recover.
The scheme is pencilled in to start in the summer or autumn of 2025 and will focus on assisting the most vulnerable customers with the most serious financial difficulties. Ofgem is still weighing up how to fund this debt forgiveness programme, but it will be either:
- Network companies cover the cost, then recoup them through higher charges
- Suppliers cover costs but receive a price cap allowance to reimburse them
It’s proposed that consumers in energy debt will be asked to pay a portion of what they owe in exchange for the remainder of the debt being erased. However, critics of the scheme warn it could transfer risk to regulated network companies and ultimately lead to higher costs for the consumers who have always met their obligations.
Ofgem will continue consulting on this scheme and the right way to alleviate energy debt in the UK.
Standing charges on the way out?
Ofgem’s proposed debt relief scheme comes as part of a wider reform of energy tariffs. It is also considering whether suppliers should be able to offer zero standing charge tariffs alongside the more traditional standing charge/pay per unit options. Many thousands of customers have protested against standing charges, believing them to be unfair to people who do not use much energy.
Ofgem believes that introducing tariffs without standing charges could boost flexibility in the marketplace and give consumers more choice. However, there are concerns that such tariffs could penalise vulnerable customers who are high energy users, such as people with specialist medical and health needs. Ofgem will consult with the government, industry bodies and charities to try and plot the right path, so every consumer can select the best energy tariff for their needs.
Rising gas prices
It’s clear that measures like debt relief and more flexible tariffs are needed more than ever. After a temporary respite, gas prices are on the rise again. This is because Russia has halted their gas supplies that go via Ukraine through to Eastern Europe, ending an arrangement that lasted for decades.
While most of the UK’s gas comes from the North Sea, Qatar and the US, closing off Russian supplies will distort the market, leading to higher gas prices across the board. The earliest potential impact on UK bills will come in April 2025, when Ofgem revises its price cap for the next six months.
Looking to the future
It’s difficult for vulnerable customers to heat their homes this winter. Energy prices have not fallen too far from their 2022 energy crisis levels, while there is little good news on the horizon.
Anything the regulators can do to help is welcome, whether that’s debt forgiveness, more flexible tariffs or anything else. Let’s hope these measures work.