Why Higher Water Bills Have a Knock-On Effect for UK Energy Suppliers

British Gas recently reported bad debt charges and provisions that overall stabilised and EBITDA increased year over year in 2024, implying an easing of the UK's energy affordability crisis. British Gas' recent performance may suggest that those affordability concerns belong in the past, especially considering inflation in the UK has moderated substantially from the record levels seen in late 2022. However, we believe that UK energy suppliers are not out of the woods yet.

-- UK utility bills are set to increase further in 2025, which will compound affordability issues for consumers.

-- Subsequent bad debt charges are likely to renew pressure on earnings for energy suppliers.

-- While both energy and water companies will be affected, we believe that energy companies are more exposed to the risk because of higher competition in the sector.

"Energy supply is a low-margin business, and higher utility bills for UK consumers in 2025 could continue to cause problems for energy providers", said Amaury Baudouin, Senior Vice President, Sector Lead, Corporate Ratings.