LONDON (Reuters) - Britain’s energy market regulator Ofgem will review the way it awards supply licences and financial requirements on energy suppliers later this year, it said, following calls for firms to undergo stricter financial stress tests.
In a speech on Thursday, Ofgem Chief Executive Dermot Nolan said there had been a lot of interest in the energy sector’s financial stability due to the increasing number of suppliers, many of which are very small.
“We have had many representations from those who consider we should require companies to meet more significant financial tests both before and after receiving a licence,” he said.
“So we will review our approach to awarding supply licences, the financial requirements on suppliers, and how we monitor supplier performance later this year,” he said, adding it was possible the regulator would choose not to make any changes.
At the moment, Ofgem can monitor the financial situation of energy suppliers and can revoke a supply licence and appoint another supplier to take on a company’s customers if it goes bankrupt, for example.
Apart from the Big Six energy firms - EDF Energy (EDF.PA), Innogy’s Npower (IGY.DE), E.ON (EONGn.DE), Iberdrola’s Scottish Power (IBE.MC), SSE (SSE.L) and Centrica’s British Gas (CNA.L)- there are more than 40 others.
Energy supplier GB Energy went bankrupt late last year, after a quick rise in wholesale energy prices and its inability to forward buy energy meant its business became untenable.
Some small suppliers might not have enough financial means to buy energy further ahead than a few months, while larger companies typically hedge a few years ahead, locking in prices over a longer period.
The weak hedging position of some small suppliers has worried other players in the market as they say the bankruptcy of one could make customers lose faith in better-managed suppliers.
Reporting by Nina Chestney; editing by Susan Thomas and Adrian Croft