Ofgem opens discussion on affordability and debt

Energy regulator Ofgem has announced a call for input to examine issues around affordability and debt in the energy market.

The regulator says that its first responsibility is to protect consumers, and we remain very concerned that struggling households have a limited ability to cope with future price shocks. At the same time, the cost of recovering bad debts, and the high number of consumers who are locked into debt and repayment plans, could have serious consequences for the retail energy sector.

Additionally, to meet the affordability challenge and achieve our net zero goals in the long term, we need to rebuild our energy system around cleaner, affordable, and secure source of low carbon and renewable energy. This will require significant investment, and to the extent these costs go on to bills, the risk is that short-term costs could disproportionately hit lower income consumers that are not able to invest in the technologies or change behaviours to reduce costs without further action.

To further examine issues around affordability and debt, we are issuing this Call for Input to work out the steps we need to take to guard against the harmful impacts of future price shocks, to ensure that the debt burden doesn’t leave us with an unsustainable situation which will lead to higher bills in the future, and to look at how we can better support consumers now and in the future as the market evolves.

Tim Jarvis, Ofgem’s Director General for Markets, said “Prices are slowly falling as the energy market stabilises – but many people have been struggling to pay their energy bills amid unprecedented levels of debt and the legacy of this risks becoming an enduring problem.

“There have been numerous interventions to support different groups of customers, but a longer term solution requires us to take a step back and see the big picture which is why are launching this call for input on affordability. We need to look at energy affordability as a whole – what’s working, what is not and where are the gaps.

“We have taken action already – changing standing charges for PPM customers so they are not charged more than anyone else and toughening up requirements on suppliers to take care of their customers.

“However, the growing level of debt means a longer term approach is needed to ensure we have a stronger market and the right support for struggling consumers to protect them from future price shocks and ensure all consumers benefit from the transition to a new cleaner, more secure energy system.”

Responding to Ofgem’s call for input Energy UK’s Deputy Director, Daniel Portis said “Affordability remains a big concern for many customers and the energy sector itself – so this consultation is welcome. A sustained period of high prices means customer debt has risen to a record £3.1 billion and even with the respite provided by next month’s price cap fall, many customers will still struggle to afford bills higher than what had been the norm – let alone being able to pay down arrears.

“Suppliers do all they can to help customers struggling with bills including providing tens of millions of pounds of discretionary support every year, in addition to that provided through schemes like the Warm Home Discount. However resolving a problem of this scale, when many customers can’t afford energy at the cost which it takes to supply it, is not something the industry can do alone.

“So there’s a clear need to put in place enduring targeted support to make bills more affordable for those customers most in need. Energy prices could also rise again in the future and it won’t be possible to repeat the expensive, universal support the Government had to provide at short notice last winter.

“There is certainly broad agreement across the industry on the need for this but it will require all parties – including the Government as well as Ofgem, suppliers and consumer groups – to work together on detailed and workable solutions.”