Partner London
"Under this innovation, the concept is for licence exempt generators/suppliers to supply electricity to customers via the grid network on a licence-exempt basis."
The Electricity Act 1989 establishes that supply is a licensable activity and that suppliers must be licensed by Ofgem, unless the supplies fall under one of the exemptions set out under the Electricity (Class Exemptions for the Requirements for a Licence) Order 2001, in which case a supply of electricity can be made without holding a licence, known as licence-exempt supply. There are levies assigned to licensed electricity supplies (essentially those to recover the cost of subsidies, such as the Contract for Difference, Capacity Market, Renewable Obligation Certificate and Feed in Tariff schemes) and which are charged by licensed electricity suppliers. These levies are not applicable to licence-exempt supplies.
Essentially under this innovation, the concept is for licence exempt generators/suppliers to supply electricity to customers via the grid network on a licence-exempt basis. We still get told that this is not possible, however, as demonstrated by the fact that: (a) this has now been in operation a number of years; (b) it has been sanctioned by Ofgem; and (c) Elexon has made changes to the to accommodate this innovation (having used an interim solution to date and now introduced an Exempt Supply Notification Agent (“ESNA”) for settlement purposes),
Benefit
The benefit of being a licence-exempt supply is that, similar to a private wire supply, the supplier levy charges (i.e. as noted above such as Contract for Difference, Capacity Market, Renewable Obligation Certificate and Feed in Tariff scheme related charges) are not applicable thereby creating a saving on the supply of electricity. These charges currently equate to circa £70/MWh and accordingly are sufficiently sizeable and can be shared between the generator, as increased revenue on their electricity sales and the customer, as reduced charges on their electricity supplies. The generator would enter into a PPA directly with the customer for the sale of the electricity with a supplier recognising such supplies in the customer supplies and an ESNA will calculate the volumes of licensed and exempt supply and submit these to BSC central systems.
Challenges
What is the catch and why is not everyone doing it? You have to put into place technical metering processes which are quite novel, which is where John Bone comes in – as noted above, until recently this has been done using an interim solution under the BSC and will now be more formal by way of an ESNA.
Furthermore, it only applies as regards two licence exempt options, namely (a) small generators (i.e. less than 5 MW/hr for the whole group consolidated commercial supplies); or (b) as regards spill from a generator/customer without limitation (subject to certain onsite consumption requirements). We have advised on the eligibility of projects and the associated paperwork under both structures for several live projects.
We have been doing such projects by word of mouth, however, as Elexon has issued BSC modifications to formalise the metering allocation for such exempt supplies through the Exempt Supply Notification Agent, we feel it is time to open this up to the market.
"Small generators and customers spilling surplus onto the grid would be eligible."
What is the opportunity?
Essentially, if you are a small generator, up to 5 MW of your supplies would be eligible. Alternatively, as a customer, you could approach any number of small generators, anywhere in the country with this structure.
If you are a customer with an existing behind the meter generation facility (owned by yourself or a third party) and are spilling surplus to the grid network, the spill could be supplied back to yourself on licence exempt basis.
As noted above there are quite large savings to be made in implementing this innovation.
