Household debt is no longer a temporary hangover from the 2022 energy crisis. It is now one of the energy sector’s biggest structural issues.
Households across Britain now owe their energy suppliers £4.8 billion. Industry experts fear that from July, when the Ofgem price cap rises by 13% to an average of £1,862 per year, the debt problem will get even worse.
The situation has become so serious that Scottish Power wants part of the bad debt pile pooled, sold to banks and repaid over a longer period. That may ease pressure on suppliers. But it does not tackle the cause of the problem. In this article, we’ll examine the energy debt crisis in more detail, including what more can be done. Let’s get started.
The energy debt crisis
The scale of the debt problem has changed. Ofgem figures show household energy debt across Britain reached £4.8bn in the first quarter of 2026. This figure includes debt and arrears more than 91 days old.
At the start of 2018, the figure was £1.1bn. Since then, households have faced one shock after another. Wholesale gas prices jumped after the pandemic, rose again after Russia invaded Ukraine, then came under fresh pressure this year with the conflict in Iran. The Baringa consultancy now warns that household energy debt could reach £7bn by the end of 2027, deepening financial strain across the country.
This is already feeding back into bills. Under Ofgem rules, suppliers can recover the cost of bad debt from all customers. That means:
- Households in debt fall further behind
- Paying customers carry more of the cost
- Suppliers face more pressure on cashflow
Bad debt currently adds around £55 a year to a typical annual bill. If the debt pile reaches £7bn, Baringa says that could rise to £100 per household.
Introducing securitisation
One of the UK’s biggest energy suppliers, Scottish Power, has put forward a plan to ease the pressure on suppliers caused by debt. If they get their way, parts of the bad household energy debt pile will be pooled and sold to banks.
Here’s how it works. Bad debt arises when households are unable to pay, however hard suppliers chase. Scottish Power estimates this unpayable share at around one-third of the current £4.8bn total. That is roughly £1.6bn. Under its proposal, this part of the debt would be ringfenced, securitised and repaid over about 10 years. Banks would provide financial support upfront. Households would then repay that portion at a cost of under £10 a year, according to Scottish Power’s analysis. The company argues this would reduce the pressure on suppliers and lower the overall debt burden compared with the current model. Households would still face costs linked to the wider debt pile, but the most difficult debts would be spread over a longer period.
The proposal may improve supplier cashflow. It may also smooth some costs for consumers. But it does not make energy cheaper, cut demand or shield Britain from the next global gas shock. Debt restructuring can manage the damage. It cannot fix the system that keeps creating it.
Can we increase resilience instead?
The latest price cap rise shows why debt keeps building. Wholesale energy prices surged after the war in Iran disrupted oil and gas shipments through the Strait of Hormuz. The price cap delayed the impact for households, but from July 1st, those higher costs flow into bills. The deeper problem is that Britain remains too exposed to global gas markets. When prices rise overseas, households feel it at home. Bills go up, arrears grow and the sector starts looking for new ways to finance the damage.
The long-term answer is to make better use of the clean energy Britain can already generate. That means improving the network and strengthening storage capacity, so renewable power can move where it is needed and be stored when supply exceeds demand.
Right now, too many opportunities get wasted:
- Clean energy production is rising, but bottlenecks delay connection
- Regional demand is changing faster than planning can respond
- Storage needs to capture surplus renewable power before it is lost
Better infrastructure will not clear £4.8bn of debt overnight. But it addresses the cause of high, volatile energy costs rather than changing how the debt is carried.
Looking to the future
Scottish Power’s proposal shows how severe the debt crisis has become. Securitisation may help suppliers manage part of the bad debt pile and spread costs over a longer period. But consumers need more than a new way to finance arrears.
Britain needs lower, more stable energy costs. That means stronger networks, more storage and better use of available renewable power. Debt management can buy time, but for a brighter future, the energy system has to change.