Ofgem consults on changes to the licensing regime for suppliers

The recent demise of Economy Energy with 235,000 customers, highlights the difficulties of entering and surviving within the energy supply market. Ofgem are currently consulting on changes to the licensing regime focussing on issues such as customer service and financial tests for new suppliers, the way suppliers accrue, hold and use customer balances and payments under the Renewables Obligation scheme amongst others.

The initial interest in local authority ESCos following the emergence of Robin Hood and Bristol Energy did not take off as expected, although there are still a small number of councils seriously looking at this option. Rather the switch has been to white labels but of course, the success of these is also dependent upon the licence holder. Civic energy companies will fall under the same regulations of course but the nature of local authority decision-making, accountability, transparency and risk management should ensure (but won’t guarantee) that the business model is appropriate.

Some think that the focus on the customer has led to difficulties for suppliers to enter the market and offer a variety of tariffs to the point where competition is suffering. This would not be in line with Ofgem’s wider aims of a larger number of suppliers with a range of tariffs but the market will react as it sees fit to all policy changes – as a result moving away from the dominance of the big 6 suppliers may take far longer than some wish was the case.

Tighter regulation won’t necessarily make setting up an energy services company any more difficult but it might flush out unfit suppliers before they are up and running. Hopefully, it won’t put local authorities off considering this option either.