When the Going Gets Tough… Stricter Regulations for New Energy Entrants

By 25 April 2019 General

The energy market has seen the demise of 11 companies in the past year. As a result, it’s come as no surprise that people are reluctant to switch suppliers, even if that means paying more with their current supplier. It’s crunch time, immediate action is required.

After a raft of failures within the energy market, Ofgem have recently stated ‘Companies applying for a licence to supply energy will have to undergo more stringent tests from June in order to help drive up standards for customers and reduce the risk of supplier failure.’

The most recent company to cease trading was Brilliant Energy, who were replaced by SSE a member of the big six energy firms, to take on customers of the collapsed energy company. On too many occasions new entrants to the market have ended up in a similar position, making victims of their customers who have sometimes been left facing large administrative costs and a lot of inconvenience.

Millions of Britons are paying more than they need to for their energy for fear of similar reprisals, even after the introduction of Ofgem’s price cap in 2018. That will only be addressed if customers are confident and willing to switch and at the moment, they’re not.

Three small energy companies have ceased trading this year alone, while several also collapsed in 2018, Extra Energy, Future Energy, Iresa, Gen4U, Usio Energy, and Spark Energy to name a few. Leading to questions over the viability of some of Britain’s 50 or so independent energy suppliers which have taken the market share from the “big six” companies over the past few years.

What will new entrants need to do now?

New applicants will now need to demonstrate that they can adequately fund their operations for the first 12 months, show how they expect to comply with key regulatory and market obligations. They will also need to demonstrate their intentions to provide a proper level of customer service to their customers. This also applies to directors, major shareholders as well as senior managers at these companies, as they now will have to formally apply for their licence in order to show that they are ‘fit and proper’ to own it.

Are existing suppliers exempt?

Ofgem will now consult on any new proposals in the summer with the intention of also raising standards of existing suppliers within the market. The regulator will consider new reporting requirements for suppliers who are already active in the market alongside rules around how suppliers manage customer credit balances.

How has all of this impacted the industry and its customers?

Over the last 18 months more and more consumers have benefited from competition within the energy market, in turn this has driven down energy prices. Customer service standards have also increased and all in all this environment has provided more choice for customers. However, a number of providers have called on the regulator to give better supervision and monitoring of new suppliers, a reflection of the reputation of those which had adopted unsustainable pricing models

As a consequence of these supplier failures, Ofgem’s ‘safety net’ (a term phrased by Ofgem which guarantees the customer will always have an energy supply and will feel as little change as possible should their supplier go out of business) has protected domestic customers’ credit balances and ensured all customers’ energy supply continues without any interruption. Ofgem do still acknowledge that whatever measures they put in place, a lot of customers can and still do experience inconvenience and worry if their supplier fails.

What are regulatory bodies doing about it?

By making supplier entry stricter, as well as ongoing requirements, customer service standards will be driven up and risk of disorderly supplier exits will be reduced.

By doing all of this Ofgem aims to reduce the impact on customers, which includes the cost, a supplier failure has on consumers and the wider market.

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 underprepared, 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.”

Utility Team work with the majority of suppliers in the UK and have a wealth of experience within the energy market. If you need advice / help or would like to discuss your options don’t hesitate to contact us; 02476 997901 / enquiries@utilityteam.co.uk

 

Article written by Reiss Foster, Senior Energy Consultant