Energy regulator Ofgem is considering a one-off increase to the energy price cap of up to £17 a year to help prevent suppliers from going bust as consumer debts spiral.
The watchdog said it is launching a consultation on options to protect the energy market, following figures obtained by Ofgem this summer showing that energy debt reached £2.6billion.
The regulator said this was due to a combination of the increase in wholesale energy prices and wider cost of living pressures.
The consultation includes looking at a one-off increase in the price cap, equivalent to an extra £1.50 a month on average, to “reduce the risk of energy firms going bust or leaving the market as a result of unrecoverable debt”.
The energy price cap surged last year, forcing the government to introduce the temporary energy price guarantee scheme
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Ofgem warned that if it did not take action, consumers could be at risk of even higher costs and poorer standards of service if suppliers collapsed because of debt levels.
The energy industry, consumer groups and the wider public will be consulted to look at options.
If the price cap hike were approved, any increase to the cap would be delayed until next April, rather than taking effect during the winter.
Tim Jarvis, director general for markets at Ofgem, said: “We know that households across the country are struggling with wider cost-of-living challenges, including energy, so any decision to add costs to the price cap is not one we take lightly.
“However, the scale of unrecoverable debt and the potential risk of suppliers leaving the market or going bust, which passes on even greater costs to households, means we must look at all the regulatory options available to us.
“Ofgem cannot subsidise energy or force businesses to sell it at a loss and suppliers must be in a position to offer high-quality services to customers.
“We must consider the fairest way to maintain a stable energy market and we will do this in consultation with all our partners to ensure we are protecting the most vulnerable households.”
At the height of the energy crisis, around 30 suppliers went out of business, with Ofgem stating it charged every energy customer an extra £82 to cover costs to ensure households weren’t cut off.
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Campaigners are urging the Government to work with energy firms to introduce a 'help to repay' scheme
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However, Simon Francis, coordinator of the End Fuel Poverty Coalition, said the Government should look to help customers pay off energy debts.
He said: “Households are struggling under the huge weight of energy debt which has been caused through no fault of their own but by rising prices.
“All this time, energy firms have continued to profit from the misery of people racking up debt and living in cold damp homes.
“Rather than pass on more increases to energy bills, the Government needs to work with energy firms to introduce a ‘help to repay’ scheme to help get Britain’s households back on to an even keel.”