The energy crisis of winter 2021 highlighted significant weaknesses in the retail energy market’s financial resilience.
In response, the energy regulator is proposing the Supplier of Last Resort (SoLR) Levy Offset (SLO) as part of a broader set of measures to protect consumers and ensure suppliers manage their risks more effectively.
This measure would require suppliers to enter a deed of undertaking to pay the networks any SoLR levy claim if the supplier fails and a SoLR is appointed, thereby protecting consumers from the costs of future supplier failures.
Ofgem said the SLO is designed to prevent the “moral hazard” where suppliers take risks knowing consumers will bear the costs of failure.
The SLO aims to reduce the financial burden on consumers when a supplier goes under by enabling electricity and gas network companies to recover value from failed suppliers.
In a recent review of previous supplier failures, it was found that if the SLO had been in place, around 60% of costs incurred by SoLRs could have been recoverable.
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