Ofgem Announces Plan to Tackle Energy Debt,Offering relief to Hundreds of Thousands
Ofgem today unveiled a plan to address the £4.4 billion of debt accumulated within the energy system, particularly stemming from the recent energy crisis. The initiative aims to provide relief to approximately 195,000 customers through a Debt Relief Scheme, perhaps writing off up to £500 million in arrears.
The regulator is finalizing details for the frist phase of the scheme, with a full consultation document expected shortly. Currently, the cost of recovering – or ultimately writing off - this debt is distributed across all energy bills, adding roughly £52 to the average bill under the current price cap. Ofgem’s proposals seek to reduce this overall debt burden and reform debt management practices to prevent future accumulation, while prioritizing protection for vulnerable customers.
A key component of the plan involves streamlining the process when residents move into new properties. currently,energy accounts default to ‘occupier’ status,leading to unpaid bills that can accumulate until a new resident registers with a supplier. This contrasts with many European countries were immediate account setup is required. Suppliers estimate this ‘occupier’ debt could represent between £1.1 and £1.7 billion – up to a third – of the total historic debt, potentially being written off and absorbed into general bills.
safeguards will be included to protect vulnerable consumers,potentially including providing credit via smart meters when switching to prepayment mode for new tenants or homeowners,ensuring uninterrupted energy supply while they establish an account.
Charlotte Friel, Director for retail Pricing and Systems at ofgem, emphasized the widespread impact of the debt: “The growing amount of debt in the energy system is a significant challenge – for those struggling with debt, for households facing higher bills, and for an industry hampered in its ability to innovate.” She added, “We must balance supporting those who can pay with targeted assistance for those most in need.These proposals will directly help households while also reforming debt management within the sector.”
Alongside the Debt Relief Scheme,Ofgem will also release a “Know Your Rights” document outlining the support energy suppliers are obligated to provide to customers facing debt difficulties.
The first phase of the Debt Relief Scheme, slated for launch in early 2026, will focus on households receiving means-tested benefits who accrued over £100 in debt between April 2022 and March 2024. Eligible customers will be automatically identified by suppliers and contacted, with an expectation they are actively contributing to debt repayment or are working with a debt advice charity.
Further details and policy documents will be published in the coming weeks, with Ofgem stressing the need for collaboration between industry and government to create a fairer and more sustainable energy system for all consumers.
