NEWS

In April, we wrote about the demise of Rebel Energy, the UK energy supplier that had to cease trading in the face of rising wholesale gas prices and customers struggling with the cost of living. But was Rebel Energy an anomaly, or is the rest of the industry struggling too?

Ofgem has rolled out new rules to strengthen capital resilience in the marketplace, ensuring suppliers have the financial depth to withstand future shocks. While most have risen to meet this challenge, a few key players, including market leader Octopus Energy, have not. The divide between those who comply and those struggling to achieve compliance signifies a sector dealing with insecurity.

In this article, we’ll explain more about the new rules and why some suppliers are finding compliance a challenge. 

New rules

To prevent a repeat of the 2022 energy crisis, which saw around 30 smaller suppliers forced out of business, Ofgem introduced a mandatory capital framework that came into effect on March 31st 2025. These new rules state that every supplier should hold at least £115 in adjusted net assets per domestic dual fuel equivalent customer. There’s also a non-negotiable capital floor of £0, preventing suppliers from operating in negative equity.

This buffer is there to absorb the impact of future ‘severe but plausible’ shocks in the wholesale energy market. Ofgem states that while general day-to-day business may see suppliers falling below the target, they must have a recapitalisation approved by the regulator if they do. 

What’s the problem?

Of the 23 domestic energy suppliers monitored by Ofgem, 20 have met the capital target. However, three have not. While Ofgem have not named these three non-compliant suppliers, market leader Octopus Energy has confirmed that it is one of this group. As a result, it is working with a regulator-approved transition plan. 

In its defence, Octopus insists that it is fully compliant with the new rules despite falling short of the target. The company points to its £1.7 billion balance sheet and a unique trading arrangement with Shell that protects it from many key financial risks that impact other suppliers.

Still, Octopus is frustrated. The company claims the rules are skewed in favour of publicly-listed firms and those owned by foreign governments, which can issue parental guarantees to meet capital requirements. Despite being near investment grade and backed by global institutional investors, Octopus says it doesn’t have access to the same options.

Then, there is Ovo Energy, Britain’s fourth-largest energy supplier. Unlike other major suppliers, Ovo refused to say whether it has met the capital target. It has stated that it is preparing to raise hundreds of millions of pounds in capital, which seems like an admission that it is not fully compliant yet. In contrast, the rest of the Big Six – British Gas, EDF, Eon and Scottish Power – have confirmed that they are compliant.

Learning lessons

The irony with Ofgem’s new rules is that they’re not a guarantee of financial resilience. Rebel Energy, which collapsed in March 2025, would have met the capital reserves standard. The lesson is that holding capital is not enough. Liquidity matters just as much. Companies need to be operationally prepared to survive future wholesale shocks.

The current results suggest that resilience is a work in progress. The good news is that net assets per supplier are currently at £3,600, more than double December 2023’s figure of £1,664. Adjusted net assets in aggregate are at £7.5 billion, stemming from a mix of retained earnings, capital injections and alternative sources of capital.

On the other hand, operating profits are falling across the sector. Domestic suppliers posted an aggregate EBIT of £2.57 billion in 2023. For 2024, the provisional figure is £0.84 billion.

What’s next?

While Ofgem proudly states that the market is much more resilient than it was during the 2022 energy crisis, it’s clearly not where it needs to be yet. The new rules promote stability, but if even the largest suppliers cannot comply, the pressure on the sector still remains.

Suppliers must continue to strengthen their foundations, as frustrating as it may be sometimes. After all, we all hope it doesn’t require another price shock to determine whether the industry is sufficiently resilient.