Ofgem introduces tougher entry tests for energy suppliers
The Informer

Companies that want to secure a supplier licence from the energy regulator will have to meet stricter standards from June following a string of collapses.

Ofgem said applicants will now have to demonstrate that they have sufficient funding, provide a customer service plan and pass a “fit and proper” test.

The watchdog will also launch a consultation during the summer on ongoing requirements for suppliers currently in the market.

Stricter tests have become necessary following the collapse of ten small energy suppliers in the past 18 months.

Risk-based approach

Mary Starks, Executive Director of Consumers and Markets at Ofgem, said: “In an ever-evolving market, Ofgem’s objective is to protect consumers while also ensuring they enjoy the benefits of increased competition and innovation that successful new firms entering the market bring."

“Applying new requirements on suppliers entering and operating in the market will aid us to weed out those that are underprepared, under-resourced and unfit."

“This will help minimise the risk of supplier failure and help drive up standards for consumers."

“We will adopt a proportionate, risk-based approach to licensing suppliers and will continue to encourage competition and innovation, including innovative business models, which benefits consumers.”

Must not stifle innovation

Consumer groups welcomed the move, with Gillian Guy, Chief Executive of Citizens Advice, saying: “More firms going out of business remains a possibility – it is essential the regulator acts quickly to better manage future supplier failures.”

Rik Smith, Commercial Manager at price comparison website uSwitch, added: “Many will question whether these reforms go far enough and how they will work with new requirements on existing suppliers to meet customer expectations on service and financial stability.”

But Natalie Hitchins, Which?’s Head of Home Products and Services, warned: “It is vital that any new tests don’t stifle innovation or competition between suppliers.”

> Read Ofgem's announcement