Energy retail market too easy to take ‘cheap gamble’

Ofgem’s new licensing regime will allow “bold innovation” from suppliers to ensure the transition to a smarter and greener energy market, the regulator’s consumer director has said.

Speaking at the Westminster Energy, Environment and Transport Forum keynote seminar on Tuesday (30 April) Ofgem’s executive director of consumers and markets, Mary Starks, spoke about the upcoming changes to the regulator’s licensing regime.

Tougher entry tests for energy suppliers entering the market will be rolled out from June to drive up standards for customers and reduce the risk of supplier failure.

The regulator will also launch a consultation on “ongoing requirements” for suppliers currently in the market in the summer.

Starks admitted the new regime will not be entirely risk free but added that it is currently “too easy” for a supplier in the market to take a “cheap gamble”.

She said: “Our new rules will require suppliers to bear their fair share of the risk and will limit the extent to which failing suppliers can leave unpaid bills behind them that others have to pick up.

“I do want to stress though that we are not aiming for a zero failure regime, we need firms to innovate and this is inherently risky – not all new ideas work out.

“Without bold innovation in this market we will not succeed in the transition to a smarter, greener energy system of the future.”

Ofgem is updating its supplier licence regime following a number of energy supplier failures over the past 18 months.

Companies wanting to enter the market will be subject to more “stringent” tests. They will have to demonstrate to Ofgem they have “sufficient funding” and provide a customer service plan.

Under the regulator’s new rules applicants will be required to show they can “adequately fund” their operations for their first year, outline how they expect to comply with key regulatory and market obligations, and show their intentions to provide a proper level of customer service.

Meanwhile Ofgem’s consultation later this year will aim to raise standards of existing suppliers. It will include the consideration of new reporting requirements for suppliers who are already active in the market and rules around how suppliers manage customer credit balances.

The regulator will also review the arrangements for suppliers exiting the market to reduce the risk of “disorderly” exits and minimise the impact, “including the cost”, that a supplier failure has on consumers and the wider market.

Brilliant Energy became the third supplier to cease trading this year on 11 March just days after it was revealed to be in credit default.

It followed Economy Energy, which was also in credit default prior to market exit, and Our Power.

The three companies added to a list of supplier failures in 2018, which included Iresa, Spark, Extra, Usio, Future Energy, Gen4U, One Select and Snowdrop.

Last November Ofgem proposed new financial and customer service tests for companies seeking a supply licence following increased complaints and an unprecedented shortfall in Renewables Obligation late payments.