Millions of households face a £21 hike in their energy bills next year under the regulator's plans to deal with the fallout from the coronavirus pandemic.
Proposals published today by Ofgem suggest an increase to the price cap – currently set at £1,042 a year – in April in order to deal with the "bad debt" accrued during the crisis.
Customers who have seen their income reduce or have been laid off during the virus-induced economic downturn have been able to request financial support or a payment break from their energy supplier.
The Telegraph has previously reported that more than a million people have requested some form of support.
However, the regulator said that suppliers were faced with an "immediate cash flow shortage" when customers were unable to pay their bills, and warned that this will get worse over winter.
Ofgem said: "The pandemic has resulted in anticipated bad debts rising to levels that aren't covered by the cap. "This is why we are now considering whether these higher ‘bad debt’ costs for suppliers should be factored into the default tariff price cap when we next update it from 1 April 2021."
It said this would be partially offset by the ending of a temporary increase relating to a miscalculation in wholesale energy costs.
The price cap affects default tariffs which are currently paid by an estimated 11 million households. Ofgem said customers can switch suppliers or deals for far greater savings.
Energy firms would not be required to increase prices in line with the cap, but the majority of large firms currently set their default tariffs at, or close to, the cap.
Greg Jackson, the chief executive of Octopus Energy, tweeted that the firm "opposes" the plan. He said it would lead to more "tease and squeeze", a practice whereby firms tempt customers with a low introductory offer before switching them to a higher price when their deal expires.
Adam Scorer, chief executive of National Energy Action, which campaigns on fuel poverty, said poorer households needed more support in the form of Universal Credit boosts and a warm home discount.
He conceded that some form of increase to the price cap may be needed, but added: "This winter, under Covid-19 restrictions, low-income households will use more, pay more and owe more. All the time while earning less.
"Life might be tough for suppliers. It’s far tougher for fuel-poor households at the start of winter. That's where the support is most needed."
Ofgem said households can still switch to a cheaper deal and that it has announced new protections for customers with prepayment meters coming into force next month.
A consultation on the plans is open until late December and the outcome will be announced early next year.
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