Ofgem reforms rules to shield consumers from cost of supplier failures
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Energy customers will be shielded from the cost of energy supplier failures thanks to a new rule that will make failed suppliers liable for the costs of transferring their customers to new firms, Ofgem has confirmed today (Tuesday 5 August 2025).
The Supplier of Last Resort (SoLR) Levy Offset rule will ensure the costs claimed by energy companies under the SoLR levy, for taking on customers from firms that go out of business, will be the liability of the failed supplier. This will be recovered through the insolvency process where the failed supplier has residual assets available to pay creditors.
Since the energy crisis, Ofgem has strengthened the rules so that suppliers are more resilient to shocks and less likely to fail. Suppliers must have capital to cover their risks and ring-fence certain aspects of their finances including their renewable obligations.
As a result, the market is becoming much more resilient, but like any competitive market, some companies will still fail from time to time. The new rule will ensure that, where funds remain available, keeping costs low for customers will remain the top priority.
Tim Jarvis, Director General, Markets, at Ofgem said:
“Protecting consumers remains our number one priority and the reforms we have implemented since the energy crisis to stabilise the market mean suppliers are better placed to weather any shocks.
“However, like in any healthy and competitive market, energy companies will still fail from time to time and when they do it’s right that they cover the costs first, not consumers.
“This new rule will make sure shareholders do not benefit from an insolvency process until the costs of keeping their customers on supply have been covered.”
The introduction of the SoLR Levy Offset follows a series of interventions by the regulator to drive up financial resilience in the market, including the introduction of minimum capital target rules and rules giving Ofgem the power to direct suppliers to ringfence customer credit balances when in the consumer interest.
This action has resulted in suppliers moving from net negative assets during the crisis to a positive £7.5 billion of adjusted net assets. This value protects consumers by acting as buffer to absorb losses that a company might experience, and means companies are significantly less likely to fail and better placed to focus on driving up standards for customers and investing in innovative products.
The cost of supplier failure has also now reduced to zero, and with this suite of measures the sector is in a much stronger position to weather unexpected shocks like those seen during the energy crisis, when gas prices rose to unprecedented levels.