Ofgem announces tougher financial checks on energy startups

Under new proposals designed to ensure fast-growing energy companies are financially able to handle expansion, the regulator has announced that, in the future, there could be limits on how many new customers they are able to accept.

Because of the number of company collapses in the last few years, the industry regulator Ofgem just unveiled plans to run “financial health checks” on energy startups. These checks would make sure customers have the funds to support the number of customers they are accepting.

If suppliers fail the test, the regulator could stop them taking any more new customers until they can prove they are “financially fit”. These checks would be in place at certain thresholds: when the supplier reaches 50,000, 150,000, and 250,000 customers.

The regulator says that, as well as this, new startups could be required to share plans on how they would help customers if they were unable to survive in the market. It’s hoped that this would create more accountability and reduce the risk of more collapses.

Because of the increase in unsustainable suppliers, Ofgem says that introducing tougher standards is necessary to protect consumers, even though it may reduce competition – this was one of the key reasons new firms were encouraged to start trading in the first place.

However, as pointed out by Ofgem, this didn’t result in a more competitive market that was better for consumers. Instead, it exposed many customers to unsustainable, financially fragile companies that gave poor customer service before eventually collapsing.

Since 2018, 14 suppliers have crashed out of the UK market, often leaving many consumers without an energy supplier. This crackdown is, according to the Ombudsman, good news for consumers, many of whom have seen a sharp drop in customer service levels.

Gillian Guy, the chief executive of Citizens Advice, said: “Our research estimates that recent supplier failures led to an additional £172m being added to bills. Most of these costs arose from companies leaving behind unpaid industry bills for renewable schemes.”

“The government should legislate to require suppliers make these payments more regularly, and further limit the costs to consumers when these companies fail.”