Ofgem Proposes Lower Entry Barriers for Small Electricity Suppliers Offering Clean Tech Services

Britain’s energy regulator Ofgem has launched a consultation on changes to electricity supply rules that could make it easier for smaller and more specialized energy companies to enter the domestic market.

Under the proposal, electricity suppliers with fewer than 50,000 domestic customers would be exempt from parts of the Universal Service Obligation, or USO. The obligation currently requires licensed suppliers to be prepared to offer electricity supply to any domestic customer who requests it, subject to the relevant regulatory conditions.

Ofgem argues that this requirement can create a barrier for new suppliers whose business models are designed around particular technologies or customer groups rather than the entire domestic electricity market.

The regulator is particularly interested in encouraging services linked to electric vehicles, home batteries, heat pumps, smart meters and automated energy management. These technologies could allow households to shift electricity consumption or exports according to prices and wider grid conditions, reducing demand during periods when the electricity system is under pressure.

BusinessGreen reported that the consultation is designed to lower market-entry barriers for companies offering these types of specialist clean technology services.

A More Specialized Electricity Retail Market

Ofgem's proposal reflects the changing role of electricity suppliers as homes increasingly adopt low-carbon technologies.

Traditional retail energy models have largely centred on supplying electricity, billing customers and providing customer service. The growth of smart meters, electric vehicles, batteries and electrified heating is creating opportunities for suppliers to offer more specialized propositions, including tariffs that reward customers for charging vehicles or batteries when electricity is cheaper or more abundant.

Ofgem said several prospective suppliers have raised concerns that the existing licensing framework makes these specialized models harder to launch. A business seeking to serve only households with particular technologies, for example, may currently have to demonstrate that it is capable of supplying a much broader group of consumers from the beginning.

The regulator believes allowing smaller suppliers to specialize could encourage new companies to test products, develop automated optimization services and build customer bases before taking on the obligations associated with operating at a larger scale.

Ofgem has proposed 50,000 domestic customers as the threshold because it considers this a proportionate starting point that is consistent with elements of its existing supplier assessment framework and recent applications from prospective market entrants. Once a company reaches the threshold, the full duty to offer and supply electricity under Standard Licence Condition 22 would apply.

Smart Tariff Adoption Remains Relatively Limited

The consultation also highlights a gap between the deployment of low-carbon technologies and participation in smart electricity tariffs.

Ofgem states that several million household low-carbon technologies have already been installed, while only around 835,000 consumers are currently using smart tariffs. The regulator sees wider adoption of flexible tariffs as an opportunity to improve how electricity demand interacts with an increasingly renewable power system.

Flexible tariffs can provide incentives for customers to move electricity consumption away from expensive or congested periods. Electric vehicles, batteries and some heating technologies are particularly suited to this approach because at least part of their electricity demand can often be shifted without materially affecting the service received by the household.

Greater flexibility could therefore help integrate variable renewable generation while potentially reducing the need for more expensive electricity generation and network reinforcement.

Consumer Safeguards Would Remain

The proposal would not remove the wider regulatory obligations applying to small electricity suppliers.

Companies benefiting from the exemption would continue to face Ofgem's fit-and-proper requirements and financial resilience rules. Existing price cap requirements would also continue to apply to domestic customers on default tariffs where relevant. Suppliers would remain responsible for continuity of supply for the customers they already serve.

Ofgem has nevertheless identified several potential risks.

Allowing companies to focus only on particular customer groups could mean some consumers have access to fewer specialist offers. It could also create differences between suppliers, because larger companies subject to the USO would carry obligations that smaller competitors do not. Ofgem believes limiting the exemption to businesses below the 50,000-customer threshold would reduce these risks.

The regulator also intends to monitor suppliers as they approach the threshold to ensure they have the financial, operational and compliance capabilities required to meet the USO once it becomes applicable.

Another concern is that companies could attempt to avoid the threshold by dividing customers between multiple licences or corporate entities. Ofgem proposes calculating the requirement in a way that takes account of licences held by the same ultimate parent company. For example, a group with two licences, each serving 25,000 domestic customers, would not be able to use that structure to remain outside the obligation.

Implications for the Clean Energy Market

The consultation could be particularly significant for companies developing integrated electricity and clean technology services.

Rather than competing solely through conventional electricity tariffs, new entrants could design offers around EV charging, battery optimization, heat pump operation or household flexibility. Suppliers could potentially combine electricity contracts with software and automated controls that respond to wholesale prices or grid signals.

Such models are increasingly relevant as electricity demand becomes more flexible and decentralized. They could also create stronger commercial links between retail electricity markets and the growing markets for EVs, distributed batteries and electrified heating.

However, the effectiveness of the reform will depend on whether regulatory flexibility produces viable new entrants without weakening consumer protection or encouraging unsustainable supplier business models. Ofgem has strengthened financial resilience requirements following earlier instability in Britain's retail energy sector, and the regulator has stressed that these obligations would remain in place for suppliers benefiting from the proposed USO exemption.

The regulator describes the proposed threshold as a "test-and-learn" intervention and plans to review its impact after an initial period. Evidence from the scheme could subsequently inform broader reforms to Britain's retail electricity market.

The consultation opened on 5 August 2026 and runs until 16 September 2026. Following the consultation, Ofgem will assess stakeholder responses before deciding whether to proceed with a statutory consultation on changes to electricity supply licence conditions.

Source:

• www.ofgem.gov.uk

• www.businessgreen.com