Energy providers are to face stress tests in future to avoid a repeat of the gas price chaos this year, UK regulator Ofgem announced.
Over half of the UK’s energy providers have gone bust due to soaring gas costs and from January tests will be introduced to measure their financial capacity to deal with a crisis.
Ofgem is also considering a licence system based on a provider’s finances that might cap the number of customers they can take on. Directors will also be required to meet fit and proper rules to ensure suppliers have robust management structures in place.
“Today, I’m setting out clear action so that we have robust stress testing for suppliers so they can’t pass inappropriate risk to consumers, Jonathan Brearley, chief executive of the regulator, said.
“I want to see more checks on staff in significant roles, and better use of data to help us regulate. We need a regime that can enable a sustainable market, to promote our transition to net zero.”
Ofgem has been heavily criticised for its response to the UK energy crisis, which so far has seen 27 suppliers go out of business.
That has affected 4mln customers, with estimates currently that energy bills for each UK household will have to rise by £120 on average to pay for the switch to other providers.
Brearley defended Ofgem’s performance, saying: “Ofgem has worked hard to protect consumers as gas prices have risen by over 500% in under a year.”
Providers say they have been unable to pass on the higher price of gas due to the energy price cap set by Ofgem.
Reviewed every six months, it sets a maximum bill for default tariffs but such has been the rise in wholesale gas prices, most suppliers without production assets of their own have been losing money heavily.
Ofgem said today it was consulting over changes to how the cap is calculated as well as other measures to stabilise the market.