More small energy firms could go bust this winter because of increasing price volatility driven by green energy growth and the closure of Britain’s largest gas storage plant, one of the challenger suppliers has warned.

David Bird, chief executive of Co-operative Energy, said that the regulator Ofgem needed to set financial stress tests for new market entrants, to reduce the risk of firms folding and customers being left in the lurch.

Co-operative Energy almost doubled its customer base overnight when it was appointed to take over the 160,000 customers of GB Energy, which collapsed last November when wholesale prices spiked. It now has 410,000 customers.

“With the way the whole energy mix is moving, we will see far more volatility in the [wholesale] market, and therefore I think we will see more of the small suppliers go bust,” said Bird, who left the big-six firm E.ON earlier this year to join the Co-op.

GB Energy ceased trading abruptly, blaming “swift and significant increases in energy prices”, leaving customers fearing they would lose credit on their balances.

Bird said those consumers had not been negatively impacted during their switchover to the Co-op, but added: “It has revealed a lot of flaws in the process, which we’re working with Ofgem to remedy.”

He warned that if those concerns about the supplier of last resort process were not fixed by the winter, householders could be in quite a “different situation” to GB Energy’s former customers if other firms went under. Ofgem said it was considering whether to consult on guidance for the process.

Concerns over the stability of some small firms led Dermot Nolan, Ofgem’s chief executive, to say in February that he would “review our approach to awarding supply licences, the financial requirements on suppliers.”

Bird said he supported a change to the licensing conditions: “There should be some form of financial stress test; it doesn’t need to be unnecessarily onerous.”

The chief executive’s warning about energy companies going bust is supported by industry watchers. Nigel Cornwall, founder of energy analysts Cornwall, said the record number of fully licensed domestic suppliers – now up to 58 – was unlikely to last.

“There’s an awful lot of people who take very quick routes into the market. An awful lot of suppliers in market, with more to follow. We would expect to see consolidation, acquisition.

“If we have increasing turbulence in prices, you can expect to see more failure, in my view,” he said.

The acquisitions have already begun. State-owned Swedish company Vattenfall, which only recently entered the business supply market in Britain, earlier this month bought Bournemouth-based iSupply, which has 120,000 customers, to compete in the consumer market.

Bird said the arrival of powerful foreign players such as Vattenfall and France’s Engie highlighted the “perverse” fact that only suppliers with more than 250,000 customers in Britain had to pay towards fuel poverty schemes.

“The big issue for me is I look at the way ECO [the Energy Company Obligation energy-efficiency scheme ] obligations and Warm Home Discount is funded. It’s funded by about a dozen players in the market and there’s now nearly a hundred [domestic and non-domestic suppliers],” said Bird.

Research by the competition watchdog has found that people who switched suppliers in the past three years – and are therefore more likely to be with a smaller supplier – tend to be younger, educated to degree level and own a property, while non-switchers are older, live in rented accommodation and are less well-off financially.

Bird said: “You have almost got the people that are recipients of it [fuel poverty schemes] funding it, and that’s a perverse tax. Whereas you have then got the people switching in the market, who are wealthier and more able to pay [who are not paying towards those schemes].”

He added: “Particularly now with Engie and Vattenfall coming in, these are people that should be paying the taxes, and that is distorting the whole market.” Such obligations add costs of approximately £41 per customer.

Engie recorded revenues of €66.6bn last year but has signed up 21,000 customers since launching in Britain last December, so does not have to pay towards the schemes.

Bird said some small suppliers had told him they did not want to grow beyond 250,000 customers because, if they did, the obligations mean they would no longer be able to compete on price.

The Co-op lost customers due to pricing over the winter, falling from 424,000 in 2016 to 410,000 now. The company also made a slight loss on £281m revenue last year, for the first time since it started up in 2010, as a result of investment in customer service to tackle earlier failings.

Last year, Ofgem ordered the firm to pay back £1.8m to customers over an IT and billing problem, and last week it came third from bottom in a customer service league table of energy suppliers. “We had problems. It’s no excuse,” said Bird. “I’m pretty confident we are through that.”

For Bird, the future of the company hinges on staying true to the roots in its name, and supporting community-run renewable energy projects. The supplier has power-purchase agreements with more than 40 such solar and hydro projects, and is headed towards more than 60 next year.

“The next step could be taking a direct stake in those projects,” Bird said. “I think we should look at investing in community generation. I think [energy] storage is going to be critical in future – that’s the gamechanger.”