Ofgem acts to protect customers when suppliers go bust

By Finance News On Sep 19, 2024

Ofgem has announced updates to the Supplier of Last Resort (SoLR) policy aimed at reducing the financial impact of future energy supplier failures on consumers.

When an energy company goes under, the SoLR policy ensures that its customers are seamlessly switched to a new supplier and that any credit balances are refunded.

During the energy crisis in 2021, 30 suppliers failed, leading to significant costs covered by consumers through the SoLR levy, which reached £2.35 billion.

To enhance market resilience, Ofgem has mandated that suppliers maintain sufficient capital and avoid excessive reliance on customer funds.

The new SoLR Levy Offset will shift the financial burden of failed suppliers onto those companies, allowing any recoverable costs to be addressed during insolvency.

A study showed that this change could have helped recover about 60% of the costs incurred in previous supplier failures.

If implemented, the new rules will take effect in early 2025, protecting future consumers from bearing the costs of supplier failures.

Tim Jarvis, Director General for Markets at Ofgem, said: “Our priority is to protect consumers, and if a supplier fails, every possible step should be taken to minimise the impact on customers.

“Any remaining assets from a failed supplier should be used to offset costs on household bills.

“That’s why we are introducing new rules to make sure suppliers are financially resilient and consumers are protected.

“These new rules will help to shield customers from the cost of failures in the future by ensuring shareholders won’t benefit financially from the insolvency process until the costs of keeping their customers on supply has been met.”