Ofgem’s Energy Supplier Licensing Review: what’s being planned part 1

Why the changes?

In the space of just a few years, the number of energy suppliers in the UK market more than doubled following government action to make the sector more competitive and therefore better value for consumers. As a result, the number entrants into the market rose from 27 to 64.

These newer challenger energy suppliers snapped up 30% of the domestic market and today continue to make inroads against the biggest suppliers. This period of change, however, also saw numerous suppliers fail with consequences for the market as a whole and to consumers, particularly the most vulnerable. 

A more robust energy market

To reduce the number of failures, Ofgem tightened the conditions on new suppliers entering the market. Now it wants to take that further by making additions and changes to the conditions needed to qualify for a supply licence.



The current statutory consultation is ongoing but the deadline to make responses to the new plans ends on August 20.

Domestic and non-domestic supply 

Meeting monetary obligations

A new financial responsibility principle (SLC 4B) has been proposed that will cover both domestic and non-domestic suppliers with perhaps the biggest change being a new financial responsibility principle that will require suppliers to prove that they can responsibly manage and meet their monetary obligations.

A supplier will need to demonstrate that it can pay its customer credit balances and the various governmental environmental and social schemes.



To prove this an energy supplier will need to be able to produce solid business plans and provide proof of strong financial governance. It will also need to prove that it has systems and processes in place so that it can effectively process and set direct debit levels as well as able to return credit to customers.

Failure to demonstrate that these measures are in place could be used as a mechanism by Ofgem to issue Final Orders in order to compel a supplier to take the necessary steps to implement them. 

Ensuring good customer service

The proposals also contain a new provision on operational capacity (SLC 4A) that will require energy suppliers to maintain robust systems and processes to serve their customers.

Demonstrating that a supplier can provide excellent and robust customer service has also been highlighted in the new proposals. An energy supplier will have to prove that it has the systems and capability in place to handle customer complaints and issues as well as meet their regulatory and legislative obligations.

Having robust systems in place such as effective billing software and tools to handle customer needs falls quickly and efficiently under this category.

One change under the new proposals. However. is that this operational capacity will be judged by Ofgem on its ability to aid customers and mitigate any issues.



A supplier will have to balance the SLC 4A with other obligations and this could leave energy suppliers open to breaches even if they are effectively handling things like energy billing, complaints etc.

For example, a supplier may be great at dealing with one issue but Ofgem could still conclude that it doesn’t have the sufficient robustness in its capacity to do so.

To keep the regulator happy an energy supplier will require robust systems delivering efficient and effective customer service, which may be more than just meeting existing obligations.

Supplier concerns?

Some industry experts have raised concerns that SLC 4A could create liability for suppliers whenever Ofgem deems that a supplier is not robust enough in meeting any of its legal or regulatory obligations, including ones that Ofgem typically has no powers over such as when it comes to tax and data protection.

There are also concerns that SLC 4A could add extra breaches to charges for when a supplier fails to comply with an existing obligation. 

Milestone Assessments

Another area of the consultancy being looked at is the introduction of milestone and dynamic assessments (SLC 28C).

This will require energy suppliers to notify Ofgem well ahead of time when they will reach their first 50,000 and 200,000 domestic customers. This will allow the regulator to then carry out what it calls ‘milestone assessments’ where it will decide whether the supplier has the right amount of resources in place to effectively handle such numbers.

An energy supplier will have to demonstrate that it has appropriate operational and financial resources in place to meet its obligations. At each of these milestones, Ofgem will also assess the supplier’s performance when it comes to customer services, planning and budgetary functions. 

Dynamic Assessments

Ofgem will also introduce dynamic assessments that will be launched when warning signs that a supplier is struggling to meet its requirements are detected. An increase in customer complaints or a reduction in services will be used as a trigger.

These assessments will pinpoint the areas of concern and highlight the course of action needed to mitigate them which could include enforcement action on any suspected or discovered regulatory breaches.



Ofgem hopes that these assessments will allow it to spot failing suppliers earlier than before and in turn reduce the impacts on the wider market and consumers.

If you’d like to start and manage an energy supply company, get in touch with Dyball Associates today.

Further Reading

How does the UK Energy Market work Part 1 – Energy Prices and entering the energy market

How does the UK Energy Market work Part 2 – Tariffs and Energy Billing

Ofgem’s Supplier Licensing Review: what’s being planned part 2



Dyball Associates are proud to help new supply businesses successfully launch in the UK market.

Through our energy market consultancy services, and the software we’ve developed, we’re supporting new UK electricity and gas suppliers get set up and start supplying.