Applicants for new supply licences will have to prove to the regulator they have the funds and resources to manage their business for at least the first 12 months.

They will also have to show how they will meet Ofgem’s complaint handling standards and obligations to assist vulnerable customers.

The measures should be in place by late spring 2019.

The energy watchdog has been prompted to take action following the collapse of five smaller suppliers this year alone.

Future Energy, National Gas and Power, Iresa Energy, Gen4U, Usio Energy and Extra Energy, which had over 225,000 customers between them, have all gone bust in 2018.

New firms also dominated the bottom of the latest customer service league table published by Citizens Advice, prompting the regulator to take action against the worst offenders.

Mary Starks, executive director for consumers and markets at Ofgem, said: “New energy suppliers that have entered the market over the last few years have offered consumers more choice and helped to drive down energy prices and drive up customer service standards.

“However, complaints against some suppliers have been rising recently and we have had to step in when others have ceased trading.

“Our proposed new tests for suppliers wanting to enter the market will ensure consumers will be better protected against the risk of poor performance, while still allowing more competition and innovation in the energy market to benefit consumers.”

Separately, Ofgem will consult on proposals to introduce new reporting requirements for suppliers already active in the market. These include regular updates on firms’ financial and operational resources for running their business and providing customer service.

What happens if an energy firm goes bust?

When a supplier goes out of business, Ofgem’s ‘safety net’ provision protects customers’ credit balances and ensures households’ energy supply continues.

The regulator appoints a new supplier and if customers find themselves on a more expensive tariff, they can switch to a new provider without being charged exit fees.

For more see: A guide to switching energy provider