Blog Post

Ofgem warns of more energy supplier failures and admits to needing a new approach

Richard Simmonds • Oct 08, 2021

Ofgem has issued a warning that more UK energy suppliers could be forced to exit the market if wholesale energy prices remain at their current level and admitted that it will have to regulate the market differently to prevent a repeat of the current crisis.

More closures to come?

Speaking at the Energy UK conference, Ofgem Chief Executive Jonathan Brearly warned; “Given the continued volatility in the market it is likely more suppliers will exit the market.”

The comments come after Omni Energy messaged its customers telling them that it expects to become the next casualty in the ongoing energy market crisis. If the company does go under it will be the 13^th to do so this year.

Several other suppliers look likely to fold in the coming weeks too after Ofgem warned that they will be issued with Final Orders for failing to pay their Renewables Obligations. Each of the listed suppliers has until the end of the month to pay what they owe.

Also read: Omni Energy tells customers that it expects to go bust by the end of November, Moody’s forecasts more closures

No help coming from the government

Also attending the Energy UK conference was the Secretary of State for Business, Energy and Industrial Strategy, Kwasi Kwarteng who told the audience that the government will not be bailing out any failing energy suppliers.

Instead, he went on about how the Government's plans to decarbonise the UK's power supply would protect customers in the long term. Not exactly helpful in the current situation.

“I think the recent issue that we have with the volatility of the gas price, incredible spike and then falling back brings great uncertainty to the market. I think it shows exactly why we need vigorously to pursue climate goals and to strengthen energy security, while, above all, protecting consumers and the planet,” he said.

Officials in Westminster are understood to believe that companies that have failed did not do enough to protect themselves by buying energy in advance to lock in prices and hedge against volatility.

“They entered the market knowing the price cap was there and took enormous risks,” said one.

Also read: Ofgem consulting on issuing final orders for five energy suppliers due to late renewables payments

Ofgem admits to needing a new approach

Perhaps the most important and interesting comments to come from the Energy UK Conference were those made by Brearly regarding how the energy supply market is regulated. He all but admitted the mistakes the regulator has made in that regard.

“We will need to regulate the energy market differently. When gas prices hit, many suppliers simply couldn’t cope with such a sharp, sustained shock. Ofgem’s new approach will be more focused on business models that enter and operate in our energy market and on the risks that they carry. Ofgem will have to build an energy market that is more resilient in future,” Brearly said.

He then went on to say that the regulator will have to make plans based on the prospect of more market volatility after the price of gas hit more than 400p per therm for the first time ever this week.

Also read: Ofgem vows to crack down on energy suppliers following increasing scrutiny of its own performance