Ofgem To Make It Harder For Suppliers To Enter The UK Market

New energy suppliers may have to pass strict tests on both their financial health and customer service abilities before they are awarded a license to operate in the UK.  Ofgem has proposed new testing protocol for independent energy suppliers looking to set up in the marketplace, in a bid to protect consumers from poor service and suppliers going bust.

Executive Director for Consumer and Markets at Ofgem, Mark Starks, commented that overall, the entry of new suppliers has been a good thing for consumers, helping to drive down prices and drive up service standards. However, he also said that complaints against some suppliers have risen and that Ofgem have had to step in when suppliers have folded far more frequently than they would have liked.

“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,” he said.

What do the Ofgem proposals entail?

Currently, all that is required by Ofgem for a gas or electricity supply license is to give them the company details, proposed arrangements and declarations of convictions. They assess the readiness of the applicant to manage the license, and undertake checks on directors, the applicant and any parent company for solvency.

Under the current proposals, they are looking to increase scrutiny at the point of entry, to ensure applicants are capable of delivering against their customer related obligations. Their checks would look at things like financial resources, market understanding and capabilities to deliver a high quality service.

The specifically proposed criteria which will need to be met in order to obtain an electricity or gas supply license are:

 ·  The applicant has the appropriate resources for their proposal to enter the market

 ·  The applicant understands their regulatory obligations and has appropriate plans in place to meet these

 ·  The applicant is fit and proper to hold a licence

Within these criteria, Ofgem propose to scrutinise the applicants understanding of costs, their pricing model, provision for human resources and understanding of risk.

As part of the review of how gas andelectricity supply licenses are issued, they are also proposing regularreporting from both new and existing gas and electricity suppliers, to keep abetter handle on the health of UK operators.

All issues are currently being consulted upon, with feedback invited from the industry until 23rd January2019. You can  access the open consultation and respond here.

Welcomed by the trade

The trade association for the UK’s energy industry, Energy UK, welcomed the Ofgem proposals:

“Given such a challenging financial situation in the retail market with the proposed price cap and rising wholesale prices, it is vital that Ofgem moves quickly on the new financial and customer service tests for new entrants.”

They went on to say that robust checks prior to the awarding of an electricity or gas supply license would protect consumers from ‘unsustainable business models and poor customer service.’

Low pricing by suppliers alongside increased challenges in the marketplace have seen seven firms fold during the course of 2018. With more than half a million customers affected, it’s good to see Ofgem stepping in to ensure the health and quality of the marketplace going forward.