OFGEM plans to introduce tougher tests for new energy suppliers after a series of smaller players went bust.

The regulator said companies applying for a licence to supply energy will have to undergo more stringent tests from June.

It reckons the measures will help drive up standards for customers and reduce the risk of supplier failure.

The initiative comes after the failure of operations such as Borders-based Spark Energy Supply and Edinburgh’s Our Power triggered concerns about the potential implications for customers.

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A range of new players have entered the energy market in recent years amid expectations independents could capitalise on dissatisfaction with the big six players, which include ScottishPower and Scottish Hydroelectric owner, SSE.

But 11 smaller suppliers have gone out of business in the last 15 months alone, with factors such as rising wholesale gas prices and the cost of complying with regulations posing challenges.

“Applying new requirements on suppliers entering and operating in the market will aid us to weed out those that are under-prepared, under-resourced and unfit,” said Mary Starks, Ofgem’s executive director of consumers and markets.

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Ofgem said applicants would need to demonstrate they could adequately fund their operations for their first year, outline how they expected to comply with key regulatory and market obligations, and show their intentions to provide a proper level of customer service.

Directors and major shareholders of companies that are applying for a licence, as well as senior managers, will have to show they are “fit and proper” to hold a licence.

The plan drew a positive response from SSE, which said changes were needed to protect customers from unsustainable pricing and poor customer service.

However, Stephen Forbes, chief commercial officer and co-head of the SSE Energy Services retail operation, said: “We would like to see Ofgem go further and now introduce regular checks for suppliers already in the market, ensuring they remain fit for purpose, similar to those used by the FCA (Financial Conduct Authority) for financial institutions.”

Read more: Customer losses and profit warning raise pressure on SSE

Ofgem said it would consult on proposals in the summer with the aim of raising standards of existing suppliers. Its suggestions include new reporting requirements and rules around how suppliers manage customer credit balances.

Besides Spark Energy and Our Power, other firms to have gone bust in the last six months are Brilliant Energy, Economy Energy, Extra Energy, Future Energy, National Gas and Power, Iresa Energy, Gen4U, One Select and Usio Energy.

But Ofgem reckons competition in the market in the last 10 years has driven down prices, helped raise customer service standards and provided more choice.

In its state-of-the-market report published in October, Ofgem found ScottishPower, SSE, EDF, British Gas, npower and E.On lost 1.4 million customers, in total, in the year to June.

It found smaller players had a total of around 25 per cent of the market but noted small and medium sized suppliers were struggling to expand. Firms face big increases in regulatory costs when they cross the 250,000-customer threshold. The number of suppliers increased to 73 from 60 in the preceding year.

ScottishPower and SSE have regained some ground following the failure of smaller players.

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Last month, Ofgem appointed SSE to take on Brilliant Energy’s 17,000 domestic customers after it ceased trading. In November last year it appointed ScottishPower to take on supplying Extra Energy’s 108,000 domestic customers and 21,000 business customers.

The same month Ovo Energy took on Spark Energy Supply's 290,000 domestic customers. In January Utilita Energy took on Our Power’s 31,000 domestic customers.