Energy watchdog Ofgem has said it will refer the UK's energy market to the Competition and Markets Authority (CMA).

Trust in energy companies has fallen to record lows while bills rise and customer satisfaction wanes.

“Ofgem believes a referral offers the opportunity to once and for all clear the air and decide if there are any further barriers which are preventing competition from bearing down as hard as possible on prices,” said Dermot Nolan, chief executive of Ofgem.

“The CMA has powers, not available to Ofgem, to address any structural barriers that would undermine competition. Now consumers are protected by our simpler, clearer and fairer reforms, we think a market investigation is in their long-term interests.”

In addition to the referral it has also sent an open letter to the industry warning that it will “substantially increase” the penalties it hands for practices such as misselling out in an effort “to deliver credible deterrence and ensure visible and meaningful consequences for businesses that fail consumers and do not comply”.

Energy secretary Ed Davey said: “This is tough action based on a detailed, independent expert assessment of the state of competition in Britain’s energy markets – leading to the first ever market reference for the energy markets.

“This is just too important for people to rely on guesses about how to fix the energy markets. If we get it wrong, consumers will pay the price,” he added.

Ofgem also said that while it had not found any evidence of outright collusion between the 'big six' energy firms, there were signs of “possible tacit coordination” in the timing of price adjustments.

Yesterday SSE announced a price freeze till 2016, a move that pre-empts Labour leader Ed Miliband’s pledge to enforce caps if he wins next year’s election.

“We welcome this news as it presents some stability for energy users, however we still regard solar as a better means of securing a more stable energy supply ongoing,” Vishal Giga, commercial project manager at Spirit Solar told Solar Power Portal in the wake of SSE’s announcement.

“I don't think it will impact the demand for solar significantly as the savings off your bill are just part of the financial benefits associated with solar. A larger part is the generation and export tariff which together still provide a good incentive.”