Energy firms to charge households extra £24 a year to recover coronavirus debt

Energy suppliers will be able to charge customers an extra £23.69 a year to help them cover for coronavirus-related costs.

Ofgem has agreed to allow providers to make the extra charge via its energy price cap, which is due to be reviewed this Friday, to help providers recover funds lost due to households in debt.

Known as the Adjustment Allowance, from 1 April 2021, standard variable tariff customers can expect to see their bills rise to account for the impact of the pandemic on the costs of supplying domestic default tariff customers.

The move has frustrated suppliers in the industry with Octopus Energy calling the price rise ‘absolutely outrageous’.

Debt recovery: Energy suppliers will soon be able to charge customers an extra £23.69 a year

The Adjustment Allowance was introduced in winter 2020 as a one-off ‘wholesale energy adjustment’ Covid-related cost element.

This increased the cap level by £15 in annualised terms.

However, after consultation, Ofgem has decided to include a further adjustment to reflect the effects of Covid-19 on the cap in the form of an additional debt-related cost.

The aim is to help suppliers recover some of the funds they could have lost due to helping customers through the pandemic.

This includes suppliers providing emergency credit to customers struggling to top up their pre-payment meters, putting those who are behind on their bills on affordable repayment plans and not disconnecting their customers.

The watchdog said it believes it is in customers’ interests to allow suppliers to start to recover some of these additional costs to ensure that consumers continue to benefit from a properly functioning energy market.

This has not been met well by some of those in the industry.

The aim is to help suppliers recover some funds they could have lost during the pandemic

Greg Jackson, chief executive and founder of Octopus Energy, said: ‘We haven’t seen a significant increase in people not paying their bills as a consequence of Covid so this price rise is absolutely outrageous.

‘The price cap will already go up significantly at the end of this week because of wholesale costs. 

‘Adding unnecessarily to costs for those on the highest tariffs will hurt customers at a time when many are struggling.

‘The best companies in the world work hard to charge customers less. If the dinosaur companies who lobbied for a hike in the price cap really cared about their customers, they would improve their efficiency to keep prices down instead of charging long-standing customers more.’

What is the energy price cap?

The energy price cap was launched in January 2019 by watchdog, Ofgem, as a way of keeping down the cost for households across the UK.

It is reviewed twice a year, and the next change is due this April.

The energy price cap is predicted to rise by at least £66 this year, according to data from Cornwall Insight.

The default tariff price cap is now expected to increase from its current level of £1,042 to £1,108 per year for a typical dual fuel direct debit customer from April 2021.

Households are expected to pay more in 2021 as a result of higher wholesale costs.

An Ofgem spokesperson said: ‘Wholesale prices dropped early in the pandemic mainly because of a fall in energy demand, which allowed for a £84 decrease in the price cap level for the colder winter months.

‘As demand has picked up, we have seen global wholesale prices increase too. 

‘The observation window for the next price cap level is still open, but we anticipate that wholesale prices will lead to the cap being set at a similar level to previous summers.’

This post first appeared on Dailymail.co.uk