The Energy Sector: not out of crisis yet

It has been a turbulent year across the energy industry, impacting both suppliers and customers, and the price of gas and electricity continues to be a very real concern for many.

Between October 2022 and March 2023, UK households received a monthly discount of £67 off their energy bills via the Energy Bills Support Scheme. While support was further extended to UK businesses and public sector organisations, support for domestic households came to an end in March 2023, despite many still struggling to pay.

Since then Ofgem intervention around suppliers processes and a general election have further plunged the industry into uncertainty.

Energy debts have significantly increased

Ofgem introduced a ban on warrant activity across the energy industry in January 2023, resulting in no domestic warrants being executed in the UK for non-payment of gas and/or electricity bills (introducing new rules and permitting some suppliers to recommence activity in January 2024). While this may have provided energy suppliers with the opportunity for a review of processes and ways of working, it has also resulted in there being no ultimate consequence for customers who fail to pay their energy bills.

Ofgem reports that total energy debt and arrears has increased by about 50%, from roughly £2bn to £3bn in the last 12 months. Affordability remains a significant concern for both customers and suppliers, despite the significant levels of discretionary support that energy suppliers continue to give to their customers every year.

The implications for suppliers and customers

The ongoing cost of living challenges experienced by many households means that affordability and outstanding debt is a growing concern.

From 1st July 2024 (to 30th September 2024), the energy price cap for a typical dual fuel household paying by direct debit, dropped again to £1568 per year, which is £122 lower than the cap set in April 2024 (£1690).

Moreover, industry debt is at such a level that Ofgem have again included a temporary charge within the price cap (£28 for customers paying by direct debit or standard credit), to allow energy suppliers to support customers who are in debt and struggling to pay.

Whilst the reduction has been welcomed, it is unlikely to be making enough of a difference to struggling households.

As more customers slip into debt and fail to pay, those most in need require proactive contact and tailored support. In February 2024, Ofgem announced a number of changes aimed at supporting customers in need. These include:

• Levelling standing charges to remove the ‘PPM premium’ 
• A decision to extend the ban on acquisition-only tariffs (BAT) for up to another 12 months
• Confirmation of the end of the Market Stabilisation Charge (MSC) from April 1st
• A decision not to change wholesale cost allowances

Despite this, energy suppliers, Ofgem and the government still need to do more together to tackle the significant and rising levels of debt across the industry.

Although a number of energy suppliers have now been granted the right to apply for warrants, there has been no rush to re-commence activity. It is possible that we will see energy suppliers engaging in debt sale processes in order to tackle some of their growing debt issues, and although litigation options are also an option for some suppliers, this is an expensive and costly route.

How data can help

Whilst the conversations between suppliers, Ofgem and the government for an industry-wide solution continue, suppliers must also consider the most appropriate next steps and treatment options for the customers who are in debt today. And this is where data can play a pivotal role.

Field welfare visits are already in place across some suppliers and can be vital to establish contact with customers who have previously failed to engage. They can, however, be costly, and the use of both internal and external data can help to validate the occupants of a property prior to a visit taking place.

Suppliers have a number of customer support schemes in place to help the most financially vulnerable, but such schemes are not sufficient to help all of those struggling. Maximising the use of both internal and external data to identify those most at risk and eligible for additional support can help to ensure successful engagement.

Smart meter data can be used to enable proactive communication with customers regarding energy usage, patterns of usage and triggers for customer contact. As c60% of customers now have a smart meter, this provides suppliers with an opportunity to operationalise smart meter data and insights (such as high usage warnings, energy efficiency advice, prevention of bill shock, and usage-based customer incentives and rewards) to reach out to and support those most in need.

The challenges facing the energy sector are unlikely to be solved with quick-fix solutions however there is data led action that suppliers can take now, to help and support their customers out of debt and to start to address the significant bad debt that has built up across the industry.

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