Ofgem says it needs to build a ‘more resilient’ UK energy market | Ofgem

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The energy regulator, Ofgem, has admitted it needs to pay more attention to potentially risky business models for small suppliers, amid a wave of company failures caused by low gas prices.

Speaking at an annual conference of Britain’s energy trade body, Ofgem chief executive Jonathan Brierley said it was likely that more suppliers would fail, adding to the 12 issued this year.

“We will need to regulate the energy market differently,” he said. “When gas prices fell, many suppliers simply could not cope with such a severe and persistent shock.”

He said Ofgem will have to make plans based on the potential for more volatility in gas markets, with prices soaring to record highs of more than 400p per heat this week.

He said this would include a regulatory approach that “focuses more on business models and the risks they carry,” acknowledging that Ofgem will have to “build a more resilient energy market going forward.”

More than two million gas and electricity customer accounts had to be converted to new suppliers via Ofgem’s “supplier of last resort” scheme, as suppliers succumbed to high gas prices.

The crisis has led to warnings of “desperate choices” for consumers this winter, as the cost of the scheme is likely to add upward pressure on gas bills caused by higher wholesale prices.

Speaking at the same conference, Business Minister Kwasi Kwarting said the government was “not going to bail out failing companies”, amid widespread predictions that the number of suppliers could drop from more than 70 to around 10 by the end of winter.

It is understandable that officials at Westminster believe that companies that fail have not done enough to protect themselves by buying energy up front to lock in prices and hedge against volatility. One said: “They entered the market knowing that the price cap was there and took a big risk.”

But Energy UK chief Emma Benchbeck appears to fear Kwarteng for not heeding the trade body’s warnings. She said Energy UK had “resisted saying ‘I told you so’ until now”.

At the annual Energy Conference, leaders from across the sector came together in the midst of a period of massive turmoil.

Also on the agenda were government pledges to eliminate net carbon emissions from electricity generation by 2035 – meaning that gas, which provides more than 50% of the UK’s energy on windless days, must be removed almost entirely from the system.

The UK energy company said it supports ending investment in gas “relentlessly”, meaning that plants not using technologies such as carbon capture and storage to reduce emissions.

Pinchbeck said she supported the 2035 plan, which analysts said could cost £200 billion, but cautioned that the government needed to back its rhetoric with “ambitious” policies. “The pledges are exciting, but we want the government to turn them into action,” she said.

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It is understood that officials at the Department for Business, Energy and Industrial Strategy are considering measures to accelerate the UK’s transition to renewable energy, including more frequent wind farm auctions.

Concrete proposals to reach net zero electricity by 2035 are expected to be included in the energy bill, based on a white paper published in December last year.

The bill is not expected before the end of 2021.

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