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Life is a SoLR-coaster you just got to ride it

Tom  Faulkner Tom Faulkner Analyst
21st August 2019

On Tuesday 13 August Solarplicity became another in an ever-growing line of suppliers to fall ill to the tough market conditions and exit the market either voluntarily or through the Supplier of Last Resort process (SoLR). Exiting the market is becoming a more common occurrence, this being the third exit in six days (following Cardiff Energy’s and URE’s exits), the sixth for 2019 and the fifteenth since 2016 (see figure 1). Never before have we seen such numbers of suppliers calling it quits or having their licences revoked. This mass exodus of suppliers raises the question of whether enough is being done to test robustness of business models upon new entrants.

It is fair to say that Ofgem is all too aware of the issues facing suppliers and in November 2018 it launched its Supplier Licensing Review. The review, which is currently ongoing, aims to “ensure that appropriate protections are in place against poor customer service and financial instability… strengthening the arrangements for dealing with supplier exit, to ensure that the failing supplier bears their share of the costs and minimise the implications for remaining suppliers and consumers”. The review was split up into three sections: entry, ongoing, and exit requirements.

Ofgem has since completed phase one of the review supplier entry, and updated the requirements placed on prospective suppliers, as well as an updated guidance document. Prospective suppliers are now to be assessed under three new criteria. The criteria focus on whether:

  1. The applicant has the appropriate resources for their proposal to enter the market
  2. The applicant understands their regulatory obligations and has appropriate plans in place to meet these
  3. The applicant is fit and proper to hold a licence

The criteria do not merely focus on whether the applicant has ticked all the right boxes, but scrutinises the application to assess whether Ofgem believes the supplier is likely to be successful in the market.

Having a member of management who was involved with a failing or failed supplier in the past 18 months can now count against you; similarly, if a member of management has been on the wrong side of an Ofgem investigation in the last three years, this could also see the application be refused.

In its duties as the regulator Ofgem is looking to give customers greater confidence in the market and minimise their exposure to financial risk, but also creating competition that will drive up engagement. The new supplier requirements are a much anticipated area of focus for the regulator to try to ensure the trends of the last two years do not continue, but the ongoing and exit requirements will be the real proof of the pudding when it comes to protecting consumers and competitors, and creating a market with an equitable level of risk. We are expecting formal consultations on phase two and three of the Suppler Licensing Review later in the summer.

Cornwall Insight operates a Compliance Service to help suppliers understand their obligations. This provides alerts on key developments (such as the new entry requirements) and access to our comprehensive Energy Supplier Compliance Portal. The portal has been updated for Q2 2019 and has all the information needed for a supplier to comply with the regulations.