Ofgem concerned net zero costs will hit vulnerable customers

Ofgem will launch a call for input to address affordability and debt issues in the energy market.

At the official launch of the call for input today (11 March) the regulator will say it is “very concerned that struggling households have a limited ability to cope with future price shocks”.

In particular, Ofgem will say that costs of building a cleaner energy system risks “disproportionately hit[ting] lower income consumers that are not able to invest in the technologies or change behaviours to reduce costs without further action”.

The call for input will add: “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 director general for markets, added: “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.”

The consultation will also examine the cost of recovering bad debts, with debt in the system having now risen to £3 billion. It will be open until Monday 13 May.

The government’s Annual Fuel Poverty Statistics show that an estimated 3.17 million people were living in fuel poverty in England in 2023.

That equates to 13% of all households in the country, effectively the same as the 13.1% of households classified as being fuel poor in 2022.

While the number of households in fuel poverty has remained steady the combined fuel poverty gap – the reduction in fuel costs needed for a household to not be in fuel poverty – was estimated at £1.32 billion under the Low Income Low Energy Efficiency (LILEE) metric. That equates to £417 per household, up 20% since 2022 and 64% higher than 2021’s out-turn figure of £254.