Energy suppliers in Britain will undergo financial stress testing from January to measure their resilience against a range of scenarios in a raft of new measures, the energy market regulator, Ofgem, announced Wednesday.
Where stress testing reveals weaknesses, Ofgem will agree on an improvement plan for companies to address any concerns, particularly where consumers are at risk.
The regulator said that record global gas prices this year have exposed the vulnerability of some energy suppliers to price shocks, resulting in the bankruptcy of some energy distributors.
"Ofgem has protected more than four million customers as companies have ceased trading by making sure customers have a supplier and that household credit balances are honoured," the regulator said.
Ofgem expects the reforms announced on Wednesday will bolster risk management in the sector, protecting the interests of consumers and strengthening the resilience of the energy market.
Confirmed plans include the launch of financial stress testing for suppliers from January, requiring supplier boards to undertake self-assessments of their management control frameworks and provide assurance to Ofgem, strengthening existing controls on “fit and proper� requirements.
The measures also include exploring how best to tighten rules around the protection of credit balances and Renewables Obligation (RO) payments, consulting on new financial license requirements in Spring 2022 and consulting on requiring suppliers to pause expansion until Ofgem is satisfied that they are financially resilient before they grow beyond certain milestones such as 50k and 200k customers.
“Ofgem has worked hard to protect consumers as gas prices have risen by over 500% in under a year. We have ensured that over four million customers of failed suppliers have stayed on supply, household credit balances have been protected and all customers have been protected by the price cap from fast and extreme price rises this winter," Jonathan Brearley, chief executive of Ofgem, was quoted as saying.
With the need for a regime that can enable a sustainable market that can promote the transition to net zero, Brearley said that the months ahead will be difficult for many.
"And we are working with the government and energy companies to mitigate the impact as much as we can, particularly for the most vulnerable households,� he concluded.
By Ebru Sengul Cevrioglu
Anadolu Agency