Energy regulator Ofgem today launched a consultation on plans to increase energy bills to protect the energy market and consumers from the growing risk of ‘bad debt'.
The regulator laid out proposals for a one-off price cap increase of £16, equating to about £1.33 per month from April 2024 to March 2025.
Ofgem said this will allow energy companies the flexibility to set up payment plans, write off unmanageable debt, and plan repayment holidays.
Bad debt is the amount of money owed by energy customers that is unlikely to be repaid.
In October, the regulator began a consultation on options to protect the energy market and consumers from the risk of rising debt, after energy debt reached a record £2.6 billion.
New figures from the regulator show that debt has now reached almost £3 billion, its highest-ever level.
The energy regulator blamed the increasing debt held by energy companies on wholesale energy prices and wider cost-of-living pressures.
Ofgem said in October that it was considering a one-off hike to the energy price cap to reduce the risk of energy firms going bust.
It warned at the time that such an adjustment could lead to a temporary rise in consumer bills of up to £17 a year, or £1.50 a month, on average to avoid higher costs of recovery placed on the bill payer.
During the energy crisis, when about 30 suppliers went out of business, every energy customer was charged an extra £82 to cover the costs of ensuring that households were not cut off.
The cap on energy prices has fallen from £2,500 to £1,928 by January 2024, under the government’s Energy Price Guarantee.