Energy suppliers are more likely to be carrying bad debt, caused by high energy prices and broader cost of living pressures, according to ratings agency Moody’s, while the boost to renewable energy developers could speed up ndeployment.
In a note, Graham Taylor, Senior Vice President at Moody’s, said Ofgem decided in February that there was not enough “material evidence” to include an allowance for bad debt within the default tariff cap. As a result, suppliers will need to absorb any customer non-payment. Centrica doubled a “macroeconomic provision” for bad debts, from £30 million in its December 2021 accounts to £62 million in June 2022.
Meanwhile, pressure on bills would be increased because tariffs charged to business customers are not regulated and may rise further to reflect greater credit risk.
More positively, the updated price cap shows that the premium paid for renewable energy has continued to fall. Offshore wind projects making payments under the Contract for Difference (CfD) support mechanism are expected to reduce the average electricity bill by £23. If prices remain elevated, payments to suppliers will
continue to grow as new CfD projects are commissioned. For example, 7 gigawatts of offshore wind projects were awarded CfDs in July 2022 with a strike price of £37.35 per megawatt hour (MWh), almost £300/MWh below current month-ahead prices.
Taylor said that evidence that the UK’s large investment in renewables is contributing to lower and more stable energy prices could increase support for more rapid expansion, which would be positive for developers