Smaller energy suppliers will undergo stricter tests before opening their UK store with new plans from Ofgem following a recent series of failures.
Energy companies applying for a license must now demonstrate that they can finance their activities sufficiently for the first year, indicate how they expect to comply with legal obligations and demonstrate their intentions to offer a good level of customer service.
Directors and major shareholders of companies applying for an energy license, as well as senior managers, will also have to prove that they are & # 39; fit and clean & # 39; to have a license.
New: Ofgem has introduced new rules for small energy suppliers to prevent further collapse
A number of small suppliers have recently gone bankrupt, including Extra Energy, Spark Energy, Future Energy, National Gas and Power, Iresa Energy, Gen4U, Usio Energy, One Select, Our Power, Brilliant Energy and Economy Energy.
Ofgem said his movements should lead to higher standards for customers and the risk of supplier failure.
Mary Starks, director of consumers and markets at Ofgem, said: & # 39; In a constantly evolving market, Ofgem strives to protect consumers while at the same time ensuring that they reap the benefits of increased competition and innovation that successful new businesses can to market.
"Applying new requirements for suppliers entering and operating in the market will help us to eradicate those who are insufficiently prepared, lacking in resources and unsuitable. This helps minimize the risk of supplier failure and helps raise standards for consumers.
& # 39; We will adopt a proportional, risk-based approach for license suppliers and will continue to encourage competition and innovation, including innovative business models that benefit consumers. & # 39;
Ofgem must discuss new proposals in the summer to raise the standards of existing suppliers.
This includes considering new reporting requirements for providers who are already active in the market, as well as rules on how suppliers manage customer credits.
The regulator will make new proposals in the summer and hopes to raise the standards
Rik Smith, energy expert at uSwitch.com, said: & # 39; It is true that Ofgem has tightened the rules for new energy companies.
"With more than 10 supplier failures in the last 18 months, consumer confidence threatened to be undermined, even though the supplier of the last resort process and market competition were functioning well.
& # 39; However, many will doubt that these reforms go far enough and how they will work with new demands on existing suppliers to meet customer expectations for service and financial stability.
& # 39; And although suggesting a & # 39; fit and clean person & # 39; test for business managers and improving the stability of existing suppliers are welcome, we still have to see how effective they will be in practice. & # 39;
Ofgem initially announced its plans to tighten its audits of energy suppliers last year and to start a consultation in November.
The watchdog said at the time that it was worried about poor customer service and financial instability.
Matthew Vickers, chief executive at the Energy Ombudsman, said: “It's good that we have a vibrant and competitive energy market, but, as we've seen with recent supplier disruptions and customer service issues with small suppliers, there are some risks & # 39; s for consumers.
& # 39; We are therefore pleased that Ofgem is introducing stricter controls and taking action to increase the entry barrier for newcomers to the market.
"Ensuring that new suppliers know from the outset what to do in terms of customer service – and the consequences of not meeting the expected standards – should help prevent and prevent some of the problems we have recently seen in the industry to ensure that consumers receive the protection they need.
& # 39; In addition to the changes announced today, we look forward to Ofgem's proposals for more control and supervision of existing suppliers.
& # 39; As an ombudsman, we enjoy working with suppliers of all shapes and sizes to improve their complaint handling and customer service in general. & # 39;