Ofgem introduces stricter rules for new energy suppliers

Ofgem have announced they will be introducing tougher tests for new suppliers hoping to break into the energy market. These tests will come into action from June, and are being enforced because of the recent news of the many smaller suppliers going bankrupt, as well as aiming to raise the standards of existing suppliers.

The stricter rules will see market entry fees rise from £450 to £2150, and in addition will force potential suppliers to prove they have sufficient funding for the first year of operations, show they can provide a good standard of customer service and directors, shareholders and senior managers will have to pass a "fit and proper" test before they are granted a licence.

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 under-prepared, 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.”

Gillian Guy, chief executive of Citizens Advice, welcomed the new rules: "Ofgem needs to take steps to identify those companies not delivering for their customers or that may be in financial difficulty and examine if its current approach to resolving problems it identifies is the right one. More firms going out of business remains a possibility. It is essential the regulator acts quickly to better manage future supplier failures. We all end up paying through higher bills when energy companies go bust. Without better ongoing monitoring and new rules to manage future supplier failures, consumers will continue to suffer."

Matthew Vickers, chief executive at the Energy Ombudsman, also responded positively to the proposed rules: “It’s good that we have a vibrant and competitive energy market but, as we’ve seen with recent supplier failures and customer-service problems involving small suppliers, there are some risks for consumers. We therefore think it’s right that Ofgem is putting stronger controls in place and taking action to raise the entry barrier for new market entrants.”

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References:
  • https://utilityweek.co.uk/energy-industry-responds-positively-tougher-licence-rules/
  • https://www.ft.com/content/8a022660-5c23-11e9-9dde-7aedca0a081a
  • https://www.bbc.co.uk/news/business-47891983
  • https://www.energyvoice.com/other-news/196907/small-energy-firms-to-face-greater-scrutiny-from-ofgem/
  • https://news.sky.com/story/ofgem-new-rules-to-stop-energy-suppliers-going-bust-11690323