In part 1 of this series, we revisited some of the issues relevant to projects which involve a generator supplying electricity on a "licence exempt" basis to an end-customer as part of an on-site/private wire connection arrangement. In this second article, we consider the potential for making licence exempt supplies of electricity via the grid.
As described in our previous article, the expression "licence exempt" refers in this context to an exemption from the requirement to hold an electricity supply licence.
The essence of an on-site/private wire project is the existence of a direct physical connection between the generating plant and the end-customer's premises. Whilst the customer will very likely retain its own connection to the public, DNO operated grid to source electricity which cannot be provided by the directly connected generating plant, the only "supply" by the generator to the end-customer will be of electricity which is delivered by way of the direct physical connection and not via any part of the DNO grid. It follows that on a project of this kind the generator will potentially fall within the scope of two different exemptions from the requirement to hold an electricity supply licence:-
Recent publications issued by Elexon, the body responsible for administering one of the main electricity industry code documents (the Balancing & Settlement Code), touch on the interesting possibility that, for generators who fall within the Class A exemption, there may be scope for establishing a project in which the generator does not have any direct physical connection with an end-customer – and so physically exports all generation onto the grid – but nonetheless has a direct "supply" relationship with an end-customer.
Some of the key features and potential value in establishing a project of this kind would be as follows:-
In the future (potentially from as early as next year) the regulatory mechanisms for giving effect to a project of this could be those mooted by Elexon in its white paper of April last year on "Enabling customers to buy power from multiple providers".
In the meantime, as described in more detail in a separate Elexon consultation paper from October of last year, as long as relevant customers stay with the licensed supplier with whom the generator has a supply "facilitation" relationship, there may be scope for an application to be made to the BSC Panel which governs the operation of the Balancing and Settlement Code (BSC) to enable relevant customer consumption, as notionally supplied by the licence exempt generator, to be treated as non-chargeable for final consumption levy purposes.
As Elexon notes, this kind of model may be of particular interest to community groups who would like to establish "local" supply arrangements. A community led scheme may well involve one or more generation projects of a size which fits within the constraints of the Class A exemption rules. However, for commercial developers who have an appetite to partner with community groups on schemes of this kind, there may be scope for the developer to take at least a partial equity interest in the project, structured in such a way that the specific generator entity continues to be able to benefit from the Class A, small supplier exemption.
As with many aspects of regulation relating to energy projects, rules relating to issues covered in this series of articles on licence exempt supplies are in a state of flux. Over the course of the next year or two though, we should have an increasingly clear picture of how network charges are likely to be set during the 2020s. It also seems likely that we will see some further developments around the process for end-customers being able to buy power, via the same grid meter point, from multiple suppliers – potentially including certain licence exempt suppliers as well regular licensed electricity suppliers. As so often for articles such as this one, the key message is watch this space!
This publication is intended for general guidance and represents our understanding of the relevant law and practice as at January 2019. Specific advice should be sought for specific cases. For more information see our terms & conditions.