The energy regulator has implemented tighter rules for new energy suppliers entering the market, following the collapse of several small firms over the past few years.

Companies will now have to pass tougher tests to get a licence to supply energy in a bid to drive up standards for customers and reduce the risk of supplier failure.

Companies applying for a licence now need to demonstrate they can adequately fund their operations for their first year, outline how they expect to comply with regulatory obligations, and show their intentions to provide a proper level of customer service.

Suppliers will also have to prove that their directors, major shareholders and senior managers are all ‘fit and proper’ to hold a licence.

The past 18 months have seen several small energy suppliers including Brilliant Energy, Economy Energy, Spark Energy, Extra Energy, and Iresa Energy go out of business.

This led to Ofgem consulting on how to tighten checks on energy suppliers coming into the market. It announced new rules in April – and these come into effect today.

The regulator also plans to consult on new proposals with the aim of raising standards of existing suppliers.

Matthew Vickers, chief executive at the Energy Ombudsman, said: “It’s good that we have a vibrant and competitive energy market but, as we’ve seen with recent supplier failures and customer service problems involving small suppliers, there are some risks for consumers.

“We therefore think it’s right that Ofgem is putting stronger controls in place and taking action to raise the entry barrier for new market entrants.

“Ensuring that new suppliers know from the outset what they’ll need to do on the customer service front – and the consequences of failing to meet the expected standards – should help to avoid some of the problems we’ve seen in the sector recently and ensure that consumers get the protection they need.”