Ofgem strengthens licensing criteria for new suppliers
Ofgem will demand new suppliers have clear financial and risk management experience, in the latest reforms announced by the regulator.
It revealed today that the financial experience of prospective suppliers will be scrutinised in more depth prior to the granting of any future licences,.
It will assess whether the senior teams behind any new suppliers have experience of managing risk – in the case of future shocks.
The market regulator has strengthened its overall guidance for new applicants to the energy market, as it seeks to reform the industry following months of volatility and carnage.
Soaring wholesale costs, insufficient hedging, and the constraints of the price cap has caused 29 suppliers to collapse since September – directly affecting over four million customers.
This includes the fall of Bulb Energy into special administration, where it remains on life-support – propped up by £3bn of public money.
Consequently, Ofgem wants to ensure future and current suppliers are resilient to future market challenges, and whether key personnel have necessary capabilities to run an energy firm.
This follows chief executive Jonathan Brearley revealing last December that Ofgem would bring in more stringent financial stress tests for energy suppliers.
Earlier this week, Ofgem also announced it would reduce the implementation period for the price cap to ensure household costs were more reflective of market conditions.
The price cap was hiked by an eye watering 54 per cent in February, meaning household bills will spike to nearly £2,000 in April.
Russia’s invasion of Ukraine has subsequently raised concerns over supply shortages – with analysts forecasting the cap could rise to £3,000 in October.
Following the changes, which will come in with immediate effect, Ofgem forecasts more supply and shipper licence applications will be treated as Tier 2 – higher risk – applications.
Tier 2 suppliers are required to provide further information to the regulator after the initial assessment.