Energy companies face much tougher new stress tests to ensure that they can withstand future price shocks, the regulator has said.
Jonathan Brearley, Ofgem’s chief executive, suggested that suppliers would have to demonstrate that they had hedged their energy purchases responsibly or had sufficient capital for the risks they faced.
He also warned that gas prices were likely to be high “for the coming months” and reiterated that the energy price cap was destined to increase significantly from April.
More than 20 suppliers to at least 3.7 million households have collapsed in the past few months as wholesale energy prices have soared, leaving a bill estimated at more than £3 billion for all households to pick up.
Many of those that failed are not believed to have pre-bought much of their gas and electricity, leaving them exposed to the sharp rise in prices and unable to pass on the cost to consumers because of the energy price cap.
Ofgem has been accused of lax regulation for allowing so many suppliers to enter the market. In evidence to a House of Lords committee yesterday, Brearley accepted that the sector “needs to become much more financially resilient” to withstand future shocks.