Scottish Power calls on regulator to securitise bad UK energy debts
Household energy debts hit £4.8bn in the UK, adding more than £50 a year to the average bill
One of Britain’s largest household energy suppliers is calling for a portion of bad household energy debts to be pooled and sold to banks as part of a radical plan to deal with the £4.8bn debt pile weighing on the sector.
Andrew Ward, chief executive of Scottish Power’s retail energy division, said securitising debts that poorer customers are deemed unable to pay would reduce pressure on suppliers, as well as the associated costs that are passed on to households each year.
In a report published on Tuesday, the consultancy Baringa warns that the amount households owe to their energy suppliers is on course to reach £7bn by the end of 2027, which it argues would “deepen financial strain” across the country.
“We need to stop going round in circles,” Ward said in an interview with the FT. “We are going to have to grasp this now. It has reached a point where it’s totally out of control.”
Scottish Power supplies gas and electricity to around five million homes and businesses, making it one of the largest suppliers in the country.
Household energy debt — defined as debt and arrears more than 91 days old — has climbed to £4.8bn across Britain as of the first quarter of this year, up from £1.1bn at the start of 2018, according to Ofgem figures.
The large increase follows steep hikes in bills after wholesale gas prices surged in 2021 after the pandemic, in 2022 with Russia’s invasion of Ukraine, and again this year at the start of the US-Israeli war against Iran.
On Wednesday the price cap covering typical British household energy bills is set to rise by 13 per cent, with the rate per unit of electricity almost 60 per cent higher than in 2019.
Under Ofgem rules suppliers are allowed to charge all customers more to recoup the costs of bad debt from other households, which currently adds around £55 per year to the typical annual bill. Baringa says that could rise to £100 per household if debts reach £7bn as predicted.
Ward said suppliers were working to recover debts and stop the pile from increasing. But he said that a portion of households, accounting for an estimated one-third of the £4.8bn, were simply unable to pay.
He argued that this portion of roughly £1.6bn should be securitised and sold to banks, who would then be paid back over around ten years at a cost of under £10 per household each year, according to the company’s analysis. Households would still face costs connected to the wider debt pile, but overall they should pay less than without securitisation.
“We can look for support from the financial sector and we can ringfence off this debt; we can take that financial support and spread it over a much longer period,” he said. “We need to step in, it’s got too big.”
Ward said he had raised the idea with Ofgem, the energy regulator, and the government’s energy department.
It is unclear how much support Scottish Power’s proposal has across the industry. Rival EDF has described energy debt levels as “out of control”, but one industry executive questioned this week whether it was worth tackling the backlog of debt while it was still growing.
Ward stressed that suppliers would need to show they had followed up on unpaid bills and knew which households genuinely could not afford to pay.
Scottish Power’s parent group, Iberdrola, has previously used securitisation to help finance its Spanish electricity network after the government fixed revenues from households lower than network costs, and in the US to help repair networks after a storm.
A government spokesman said tackling the “affordability crisis” was its “number one priority” and it had extended support for vulnerable households, while taking measures to stop bills rising further.
“Ofgem is considering a range of options to reduce energy debt in the system and we are working with them to understand the impacts of different approaches on consumers,” the spokesman added.