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.

IGA, may distribute information/research produced by its respective foreign marketing partners within the IG Group of companies pursuant to an arrangement under Regulation 32C of the Financial Advisers Regulations. Where the research is distributed in Singapore to a person who is not an Accredited Investor, Expert Investor or an Institutional Investor, IGA accepts legal responsibility for the contents of the report to such persons only to the extent required by law. Singapore recipients should contact IGA at 6390 5118 for matters arising from, or in connection with the information distributed.

This information/research prepared by IGA or IG Group is intended for general circulation. It does not take into account the specific investment objectives, financial situation or particular needs of any particular person. You should take into account your specific investment objectives, financial situation or particular needs before making a commitment to trade, including seeking advice from an independent financial adviser regarding the suitability of the investment, under a separate engagement, as you deem fit. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. In addition to the disclaimer above, the information does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. Any views and opinions expressed may be changed without an update.

See important Research Disclaimer.

Find articles by writer