Regulator Ofgem could introduce a new capital floor for UK energy companies, requiring them to target £130 of adjusted net assets per dual fuel customer from March 2025.
The new licensing condition would aim to ensure suppliers are better shielded against market volatility, which has led to the collapse of 30 companies since August 2021.
These failures had cost the taxpayer £2.7bn by November, a Public Accounts Committee report found, averaging an additional £94 on households’ energy bills.
Bulb, the largest to fail with 1.7mln customers, entered government-handled administration in late 2021 after it had failed to hedge against soaring gas prices and Ofgem’s cap prevented it from passing on the resulting higher costs to customers.
Ofgem may also order companies to ringfence customer credit balances, which it says they are too reliant on to fund operations, requiring them to keep more cash in reserve.
It also cited “poor liquidity and low levels of capital” as key in many of the collapses, alongside a lack of hedging – buying power off wholesale market in advance - to protect against rising prices.
“Events in the energy market have exposed that retail businesses have too often had insufficient capital to manage the risks involved in retail energy supply,” Ofgem wrote.
“[They] perused unsustainable growth strategies with low downside risk to investors.
“Suppliers must have financial reserves to ensure they survive.”