Ofgem's new regulations to stress test energy suppliers

Britain's energy regulator, Ofgem, laid out on Wednesday measures to boost supply in the country, that includes financial stress tests on suppliers from January.

“The rise in gas prices on the UK market has had a huge impact on the British energy market. In particular, we have seen 28 supplier failures to date in 2021 with consequential costs for consumers,” said Jonathan Brearley, the Chief Executive of Ofgem in a statement.

"We are now putting that approach into action, with measures and consultations focused on: strengthening suppliers’ financial resilience so that they can cope with these high and more volatile energy prices, and potential adjustments to the price cap methodology so that it can continue to protect consumers at times of high price volatility without creating unsustainable risks for suppliers," he added. 

Ofgem also said that suppliers boards must undertake self-assessments of their management control frameworks and provide assurance to Ofgem; strengthening existing controls on “fit and proper” requirements; tightening rules around the protection of credit balances and renewables levies; and consulting on new financial licence requirements in spring 2022.

The British regulator also said that they are considering whether to adapt the price cap methodology to ensure the price cap is better able to handle energy market volatility.

"There is a risk that, if not tackled, this could lead to higher costs for consumers," the regulator said.