Energy suppliers could be blocked from taking on too many customers under proposals designed to ensure fast-growing companies are financially fit to handle expansion.
Ofgem, the industry regulator, plans to run financial health checks on growing energy start-ups before they reach a certain number of customers after more than a dozen company failures in the sector in the past two years.
If the suppliers fail the test they will be barred from taking on more customers and forced to prove they are financially fit before growing past the next threshold.
Ofgem said it would put the checks in place before a supplier reaches 50,000 customers, and again at 150,000 and 250,000. The next threshold would be set between the 500,000-800,000.
The regulator may also demand that suppliers write a “living will” that sets out how they would continue to provide customers with a good service as well as an “orderly exit” if it cannot survive in the market.
Mary Starks, an executive director at Ofgem, said the plans would create more accountability in the energy market and reduce the risk and cost of further collapses.
The regulator encouraged a large number of startups to enter the market to increase competition and drive better customer service. However, it exposed customers to a raft of unsustainable energy suppliers, many of which gave poor customer service before going bust.
Matthew Vickers, the chief executive at Ombudsman Services, said the crackdown was good news for consumers. He said he supported Ofgem’s plans because there had been spikes in complaints about fast-growing energy companies that were unprepared for rapid growth.
Gillian Guy, the chief executive of Citizens Advice, said the proposals would limit the cost to consumers of failed suppliers and provide better protection.
“Our research estimates that recent supplier failures led to an additional £172m being added to bills. Most of these costs arose from companies leaving behind unpaid industry bills for renewable schemes,” she said.
“The government should legislate to require suppliers make these payments more regularly, and further limit the costs to consumers when these companies fail.”