Ofgem plans to squeeze licensing rules for new energy suppliers

The UK energy regulator unveiled proposals that would make it harder for new energy suppliers to enter the market in a bid to stop fly-by-night businesses and protect consumers.

Gas pipes
Source: Bloomberg

The Office of Gas and Electricity Markets (Ofgem) has proposed that new energy suppliers should demonstrate that they have adequate financial resources and can meet customer service obligations before obtaining a license to trade.

The move by the UK energy regulator aims to stop untrustworthy and ill-equipped companies from entering the market, with industry seeing a growing number of businesses going bust and not providing adequate customer care.

‘New energy suppliers that have entered the market over the last few years have offered consumers more choice and helped to drive down energy prices and drive up customer service standards,’ Executive Director for Consumers and Markets at Ofgem Mary Starks said.

‘However, complaints against some suppliers have been rising recently and we have had to step in when others have ceased trading.

‘Our proposed new tests for suppliers wanting to enter the market will ensure consumers will be better protected against the risk of poor performance, while still allowing more competition and innovation in the energy market to benefit consumers,’ she added.

Increased competition

In the last decade, British consumers have benefitted from increased competition in the energy market, which has helped reduce energy prices and improved customer service standards, Ofgem said.

In fact, a quarter of all customers have their energy supplied by small and medium sized-providers and have benefitted from cheaper prices.

However, despite many smaller energy suppliers coming out on top of the Citizens Advice customer service league table, the market has also seen a surge of new entrants that are providing sub-standard levels of customer service that has led to the regulator taking action to protect consumers.

Ofgem tightens rules

On Wednesday, the regulator announced it is opening enforcement investigations against two energy suppliers that didn’t make payments owed under the government’s Renewables Obligation scheme and steps to seek repayment from two other firms.

Under the proposed new rules, new entrants would have to demonstrate to the regulator that they have sufficient capital to manage their business for at least 12 months after entering the market, as well as outline how they plan to meet their customer service obligations.

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