Ovo flags ‘uncertainty’ over future after failing to meet Ofgem rules

Ovo has insisted it is “committed” to meeting financial resilience rules set by the industry watchdog after its accounts warned about a “material uncertainty” over its future following its failure to meet the targets.

The group – one of Britain’s biggest suppliers with around four million customers – fell short of Ofgem’s new regulatory targets to ensure financial strength among suppliers, which came into effect at the start of April.

Britain’s biggest household energy provider, Octopus, is also not meeting the targets, alongside another as yet unnamed company.

Ovo’s chief financial officer James Davies said in the firm’s accounts it was “committed to improving its capital position and is working closely with Ofgem to deliver a capitalisation plan to meet the minimum capital requirement”.

But the company added there was “uncertainty around the timing and extent of the implementation of a capitalisation plan due to certain elements being outside the control of the group”.

This means there is a “material uncertainty which may cast significant doubt about the group’s and the company’s ability to continue as a going concern”, according to the accounts.

The new rules were brought in by Ofgem after the 2021-22 energy crisis, when dozens of energy firms went bust.

Suppliers have been set a so-called capital buffer target of £115 adjusted net assets per dual-fuel equivalent customer, to ensure they are resilient enough to withstand future shocks.

But with three firms not meeting the rules and not having been hit with sanctions, rival suppliers have complained there is not a level playing field.

The boss of British Gas owner Centrica, Chris O’Shea, called in July for suppliers not meeting the rules to be banned from taking on new customers, and has accused Ofgem of failing to uphold its own rules.

Ofgem confirmed in response that firms that have agreed a plan to meet resilience targets are not breaching its rules and therefore do not need to have sanctions put on them, such as being banned from taking on new customers.

A spokesperson for Ovo said: “Ovo is a fully funded entity backed by longstanding shareholders and with ongoing facilities from the likes of Shell.

“Capital adequacy requirements are new and all suppliers are working with them for the first time.

“This is not a reflection on our ability to serve our customers or on performance this year and we will continue to focus on bringing innovation and long term investment to the sector.”

The group’s annual accounts showed it tumbled to a £167 million underlying pre-tax loss in 2024 from profits of £1.1 billion in 2023.

On a statutory basis, it reported losses of £135 million from profits of £817 million.

Underlying earnings dropped to £42 million from £225 million in 2023, when profits were boosted after Ofgem allowed suppliers to recover costs incurred during the energy crisis.

It showed energy customer numbers held firm at four million last year.

An Ofgem spokesperson said: “Where a supplier is not meeting the Capital Target but has a credible and agreed plan in place, they remain in compliance with our rules.

“We expect suppliers to deliver on agreed plans and adhere to any restrictions we put in place and continue to monitor this closely.”