UK households will need help paying winter bills, warns supplier

Households hit by the coronavirus crisis are likely to need government support to pay their heating bills this winter, one of Britain’s biggest energy suppliers has warned, as utilities report an uptick in bad debt.

Stephen Fitzpatrick, chief executive of Ovo Energy, now Britain’s third largest supplier, said the government would need to provide a “greater social safety net” to help financially distressed households, as rising unemployment coincides with the season when spending on heating increases as much as 10 times.

So far, energy suppliers report that the number of households struggling to pay their energy bills has remained lower than expected at the start of the pandemic, but companies such as Ovo say there has been a “notable increase” in recent weeks in customers contacting them for help. 

Suppliers are concerned about the pressures the end of the UK government’s £39bn furlough scheme this month will place on the industry at a time when the balance sheets of smaller energy companies in particular can become stretched as they have to pay certain policy costs.

Late last week, the energy market regulator Ofgem threatened to revoke the licences of seven smaller suppliers if they did not pay towards obligatory green energy schemes by the end of this month. About 20 smaller suppliers have gone bust since 2018 in the highly competitive market, which operates on thin margins.

So far, Covid-19 loans have been focused on the suppliers themselves so they can offer payment holidays to customers but this has proved unpopular with many bigger companies, which claim such support is merely propping up poor business models. They would rather see funds go directly to customers. 

Mr Fitzpatrick, whose company was propelled into the top tier of suppliers in January by its £500m acquisition of SSE’s British household supply business, said “it’s pretty obvious that private companies can’t indefinitely offer financial support” to households in difficulty.

“This is the period we’re going to see how hard it’s going to bite and I think it’s going to require the government to provide a greater social safety net,” Mr Fitzpatrick told the Financial Times. 

“There’s only so much that the energy sector itself and the energy industry can do, some of these challenges are not commercial, they are very definitely social issues so there’s lots of conversations with the regulator, with BEIS [the Department for Business, Energy and Industrial Strategy] about how we are going to tackle this as an industry,” he said.

Mr Fitzpatrick said the amount that would be required to help the hardest-hit households pay their heating bills “is not insurmountable” when compared with other Covid-19 economic stimulus packages, although the energy sector has yet to release a concrete estimate. “I hope that we see some movement from government before we reach the depths of winter,” he added.

Jonathan Brearley, chief executive of Ofgem, said the problem was not yet “systemic” but “we’re making sure we are ready in case things change for the worse”. Suppliers provided £300m in support such as payment holidays to 800,000 customers between mid-March and mid-July, according to the regulator.

Ovo, which was set up by Mr Fitzpatrick, a former City trader, 11 years ago and now has more than 5m customers, is hoping to raise £300m via a share sale in the coming weeks to further fuel its expansion and invest in technology. It has also been expanding into international markets such as Germany and Australia in recent years.