Energy regulator Ofgem is advising on proposed changes to the way energy suppliers make up losses associated with the Warm Homes Discount (WHD).
The WHD scheme, operational since April 2011, offers annual energy bill rebates of £150 to eligible households. Under power price limit methodologyThese costs are recouped through daily standing charges rather than per unit energy costs, allowing suppliers to maintain the necessary finances despite providing discounts.
In June this year, the government said it would extend the scheme, making all households on means-tested benefits eligible until the currently planned end of the scheme in March 2026.
Government changes to the WHD, which extend not only access but also the period for which the program applies, are estimated to incur an additional cost of £17 per customer.
Ofgem’s proposed change to how these costs are recouped is that, instead of recouping those costs over twelve months, a smaller increase of £6.82 would be extended over 15 months, running from January 1, 2026 to March 31, 2027.
This, the regulator said, would maintain the neutrality of the accounts in the long term. Customers would see a lower flat rate increase (£6.82) and the recovery period would be extended from the six months for which the scheme was extended, which includes two price cap periods, to 15 months, spread over five price cap periods.
Cost recovery would start earlier, from January 1, 2026, rather than April 2026. For energy suppliers, the proposal would provide an additional £1.71 per standard customer to fund WHD rebates for the 2025-2026 period before the March 2026 deadline.
The main driver for this proposal is to minimize bill volatility for consumers. Ofgem’s proposals also represent one the government is currently consulting on to continue the WHD scheme beyond April 2027.
Without intervention, Ofgem claims, customers would face a ‘lumpy’ cost profile, with the last six months of the 12-month recovery period coinciding with increases in forward-looking WHD fees from April 2026. This overlap could lead to significant bill fluctuations that the extended recovery period would help prevent.
Ofgem also notes that given the current ‘toughness’ of the price cap, suppliers may have different options to cover the shortfall in cash flow resulting from WHD payments. The regulator said it is aware that these negative impacts on supplier finances, if they became systemic, would ultimately not be in the interests of consumers. That’s why she hopes to chart a path to cost recovery that is as smooth as possible for consumers and suppliers.
The consultation on Ofgem’s proposals runs until November 7.
