UK energy suppliers are £1.9 billion short of the cash reserves required to cover customer debt.
That’s according to a report from BFY Group, which notes: “While this doesn’t suggest suppliers are short of their cash coverage targets, it demonstrates the size of the challenge to ensure robust capital adequacy ahead of the wider financial resilience rules taking effect in 2025.”
Consultants note that energy firms need at least £500 million in cash reserves to meet the rule requiring them to hold 20% of their outstanding customer credit balances.
The report states: “We also estimate 4m Direct Debit customers had a debit balance at the end of March.
“The debit balance position associated with these customers is not included in the reported data, but we estimate it to be between £300m and £500m – suggesting a deficit of up to £1.5 billion.
“This is a seasonal position, and will improve as credit balances recover through summer, but it highlights the working capital challenges faced by suppliers through the year.”
In September 2023, Ofgem decided to set common minimum capital requirements for domestic suppliers and change the licence so Ofgem can require suppliers to protect customer credit balances when it is in the consumer’s interest.
According to official data, in 2021, UK customer debt for energy has reached a record £3.3 billion, which is 50% higher than the previous year.
Many energy suppliers went bankrupt after using customer cash as working capital.
This resulted in customers paying an additional £2 billion in higher energy bills to cover the shortfall.
A spokesperson for Ofgem told Energy Live News: “Following the energy crisis we introduced a range of new financial resilience measures to ensure suppliers were not taking too much risk and were solvent enough to weather difficult periods.
“We monitor suppliers closely to ensure they are meeting the requirements and regularly take action where they are not.”
Energy Live News has contacted the Department for Energy Security and Net Zero for comment.
