Up to £500m in energy bill debt is to be cancelled by regulator Ofgem as it aims to tackle record levels of arrears.
As many as 195,000 bill payers could be helped by the write-off in the first part of Ofgem's proposals to reduce debt and prevent it rising to such highs again.
Only a small proportion of the record-high £4.4bn debt mound in the energy system will be erased. Up to a third of this, between £1.1bn and £1.7bn, is never paid.
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Consumers engaging with a debt advice charity or making some contribution to their bill arrears or ongoing energy use are set to benefit.
Eligible customers will also be identified and contacted automatically by suppliers.
How much will it cost?
Bill payers will fund the debt cancellation by paying an estimated extra £5 a year, equalling about 42 pence a month, from 2027, Ofgem said.
This measure is better than the current system, Ofgem said, of spreading the debt across everyone's bills or writing it off entirely.
Spreading the debt has added £52 to an annual bill, the regulator added.
So the measure announced on Thursday will mean bill savings overall by reducing the amount customers pay towards debt-related costs.
The scheme is likely to take effect "early" in 2026 with full policy documents published in the coming weeks, it said.
Another proposal
MPs of the Energy Security and Net Zero Committee, however, have called for energy firm profits to pay down the debt.
Energy bills have risen significantly as wholesale oil and gas prices have risen massively after Russia's invasion of Ukraine.
The rush in the West to wean off Russian imports and sanction the country, as well as ongoing geopolitical tensions, means prices have remained elevated.
Fossil fuel-producing companies enjoyed record profits as a result.
Changes when you move house
Changes for when people move into a new property are to be trialled as part of the effort to prevent debt reaching the current highs again.
Credit could be added to a smart meter or changed to prepayment mode for a new tenant or homeowner, so the new residents could have power while getting an account set up with a supplier.
At present, bills build up under "anonymous" accounts until the resident registers with a supplier.
(c) Sky News 2025: Energy regulator Ofgem to wipe millions of debt with slight increase to bills
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