Gas and electricity firms will face health checks to test their resilience under plans announced by the energy watchdog to strengthen the sector after more than 25 suppliers have gone bust.
Ofgem said energy firms will have to undergo regular so-called stress tests from January as it unveiled a raft of measures to bolster the supply sector, which has been thrown into crisis due to soaring gas prices.
However, Martin Lewis says more robust protections are needed, the founder of MoneySavingExpert.com, said: "Back in 2018, I suggested to Ofgem three tests that needed to be made before suppliers were granted licences."
He continued: "My concern at the time was that enough new small one-man-and-his-dog firms were either going bust, or playing fast and loose with customers, and that was putting people off switching. Those tests were soon introduced, though not with the level of severity I would have preferred.”
"Ofgem has been in a sticky situation for a few years. It has had to balance the [UK] Government’s wish for a competitive open market energy price solution – which means there needs to be limited barriers to entry – with protecting consumers.
"Now after the energy price catastrophe we face, it’s clear tougher protections are and were always needed. In a way that will have been advantageous for Ofgem, as the Government pressure to pump up competition will be playing second fiddle to protecting it from having to bail out firms in the future."
The cost of gas in wholesale markets has risen by more than 500 per cent in less than a year, which has put pressure on smaller suppliers - with more than half of firms in the sector going bust in 2021.
Ofgem said the planned stress tests will measure supplier resilience against a range of scenarios and if weaknesses are found, it will draw up improvement plans and even enforcement action if necessary to protect consumers.
Alongside the stress tests, Ofgem is consulting on whether to cap customer growth at certain milestones - such as 50,000 and 200,000 accounts - until it is happy with supplier balance sheet strength.
Ofgem is also proposing to launch financial licence requirements and wants to improve the "fit and proper" rules for energy firm directors, while ensuring boards have proper oversight and control of management.
Jonathan Brearley, chief executive of Ofgem, said: "I'm setting out clear action so that we have robust stress testing for suppliers so they can't pass inappropriate risk to consumers.
"I want to see more checks on staff in significant roles, and better use of data to help us regulate.
"We need a regime that can enable a sustainable market, to promote our transition to net-zero."
More than four million UK households have been affected by energy firm failures amid the current crisis.
While Ofgem protects their supply and ensures they are transferred to another firm, the collapses ultimately cost consumers more, as the bill for their failure is passed on to other suppliers, who in turn hike bills for customers.
Ofgem is consulting on policy options to cut these costs, which could see customer credit balances ring-fenced.
While its price cap has shielded householders from some of the steepest rises in energy prices, suppliers have also blamed this for sending many under as they have been left supplying at a loss.
As part of its new proposals, Ofgem said it will review the methodology of the energy price cap to make sure it is better able to cope with extreme price changes.
It is also looking at "potential short-term, temporary interventions to help stabilise the market".
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