Regulator OFGEM will carry out more robust financial checks on energy providers from January 2022, following a raft of failures this year.
This year, energy providers have failed due to a combination of surging wholesale gas prices and the regulator’s price cap, preventing firms from passing on higher costs to their customers.
Another change introduced by the regulator is more stringent vetting for energy provider bosses.
More than 20 mostly smaller energy companies have gone bust to date in recent months.
As a result, almost 4 million households in the UK have experienced a failed supplier, in most cases leading to a switch in their supplier.
According to OFGEM, they are now consulting on the future of the energy price cap, which many say is part of the problem causing energy providers to fail.
Jonathan Brearley, OFGEM chief executive, said:
“I am setting out clear action so that we have robust stress testing for suppliers so they can’t pass inappropriate risk to consumers.
“Our priority has been, and will always be, to act in the best interests of energy consumers. The months ahead will be difficult for many, and we are working with the government and energy companies to mitigate the impact as much as we can, particularly for the most vulnerable households.”
When the energy price cap is updated in April, millions of households will inevitably experience a significant hike in their home energy bills.
However, OFGEM is also consulting on ways to change energy tariffs on offer longer-term.
One option is for customers tied into a standard tariff for six months to be charged an exit fee if they leave early to access a cheaper deal elsewhere.
While exit fees would be controversial, they would prevent energy suppliers and their remaining customers from covering the costs of a departing customer.
Another option is to force energy suppliers to offer the same deal to existing customers as those they offer to new customers, in line with new rules for home and motor insurance coming into force in the New Year.
OFGEM could review the price cap once every three months, instead of the current six-monthly intervals, or even introduce an interim price cap if wholesale prices changed dramatically.