LONDON: The energy regulator Ofgem has launched a consultation on how to protect the energy market and consumers from the risk of rising debt, which has reached a record high of £2.6 billion.

The regulator said that the debt level was driven by a combination of the increase in wholesale energy prices, and wider cost of living pressures, which have affected many households during the pandemic.

To reduce the risk of energy firms going bust or leaving the market as a result of unrecoverable debt, Ofgem is considering whether to add a one-off adjustment to the price cap in April next year.

The price cap limits how much suppliers can charge customers on standard variable tariffs, which are typically the most expensive deals.

The consultation will explore a range of options, including how to spread the cost of any additional allowance between different payment methods, such as direct debit, prepayment or standard credit.

Ofgem said that the proposals would have varying impacts on the bills of customers with different payment types, based on an average increase of £17 across all customers.

The regulator also announced that it is reviewing the operating costs under the price cap, and that it is allowing the temporary Market Stabilisation Charge (MSC) to lapse.

The MSC was introduced in August to help suppliers cope with the unprecedented rise in wholesale prices, which have soared by more than 250% since January.

The consultation will run until 10 November, and Ofgem will publish its final decision in December. The regulator said that it will engage with industry, consumer groups and the public to gather views and evidence on the best way to protect the energy market and consumers.