Tougher entry tests for energy suppliers

Companies applying for a licence to supply energy will have to undergo more stringent tests from this month in order to help drive up standards for customers and reduce the risk of supplier failure, says Ofgem. 

Applicants will need to demonstrate they can adequately fund their operations for their first year, outline how they expect to comply with regulatory and market obligations, and show their intentions to provide a proper level of customer service.

The move follows the failure of a number of suppliers over the last 18 months, many of these providing a poor level of customer service before they left the market. Following these supplier failures, Ofgem’s ‘safety net’ has protected domestic customers’ credit balances and ensured all customers’ energy supply continues.

Strengthening entry and ongoing requirements on suppliers will help to drive up customer service standards and reduce the risk of disorderly supplier exits, says the regulator, which aims to minimise the impact, including the cost, that a supplier failure has on consumers and the wider market.

Mary Starks, Executive Director of Consumers and Markets at Ofgem, said: ‘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.’

The retail energy market is a not an easy place to operate. Professor David Elmes, leader of the Warwick Business School Global Energy Research Network, said: ‘In recent months we have seen a string of energy companies fail, causing concern and uncertainty for customers, and the merger between SSE and npower fall apart. However, the regulator still faces the challenge of trying to keep a market going while government policies like capping prices make it increasingly hard for large and small companies to see a viable future.’

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