Ofgem has issued guidance on when a supply licence may be needed for supplying electricity to electric vehicle chargepoints. This article takes a look at the guidance and sets out what it may mean for the EV industry.
We are living in a time of extraordinary change; the UK Government has committed to achieving net zero carbon emissions by 2050 and has set deadlines for the transition to zero emission transport systems; most notably through its Road to Zero policy document. More electric vehicles (“EVs”) means one thing for certain; more chargepoints. However, commercial models for new chargepoints may not always fit neatly into an increasingly outdated regulatory landscape.
A great example of this is the issue of whether the supply of electricity to EVs or chargepoints could trigger the requirement for a supply licence under current legislation. The Electricity Act 1989 (the “Act”) makes it a criminal offence to supply electricity “to any premises” without a licence, save where an exemption applies.
Helpfully, Ofgem (via its Innovation Link arm) published a guidance document entitled “What you need to know about selling electricity to Electric Vehicle users” on 17 October 2019(“Ofgem’s Guidance”). This article takes a look at what the Ofgem Guidance says and what it may mean for those in the EV industry.
What Ofgem’s Guidance Says
Ofgem’s Guidance provides Ofgem’s view on whether supplying electricity for the purpose of charging EVs would be considered ‘supply’ for the purposes of the Act.
In summary, Ofgem’s view is that:
- an EV is not premises for the purposes of the Act and so chargepoint operators would not be required to hold a licence for selling electricity to charge EVs; and
- chargepoints are premises for the purposes of the Act and so persons supplying electricity to chargepoints will be required to hold a supply licence unless an exemption applies.
Chargepoint operators can take comfort that it is unlikely they will be the subject of enforcement action for not holding a supply licence when selling electricity to charge EVs. However, they will nonetheless wish to ensure that the arrangements they put in place with any person to purchase electricity for the purposes of EV charging meets the requirements of the Act.
What it Means for Persons supplying electricity to chargepoints
Any person supplying electricity to chargepoints will need a supply licence or benefit from an exemption.
In many circumstances, the supply to chargepoint operators will be made by licensed suppliers and so not be problematic. However, we have considered a few scenarios where electricity may be sold by persons who do not hold a supply licence below.
Landlords selling electricity to residential tenants for home charging
Where electricity for domestic home charging is on-sold by a landlord (or any other person) to its tenants, this should generally not cause any problems provided the electricity is sourced solely from a licensed supplier. This is because an exemptionfrom the requirement to hold a licence applies where a person only supplies electricity which it has received from a licensed supplier (the “Resale Exemption”).
Ofgem’s Guidance does reiterate, however, that Ofgem’s maximum resale price ruleswill apply to such domestic customers, meaning the landlord cannot re-sell the electricity to the tenant for more than it paid for it. This rule does not apply where electricity is resold to non-domestic customers.
For landlords with onsite generation, an exemption for onsite supply should be available in most circumstances. This applies where a person supplies electricity it has generated itself (either on its own or in combination with electricity purchased from a licensed supplier) to a person who occupies premises on the same site and consumes all such electricity supplied (the “Onsite Supply Exemption”).
Persons selling electricity to destination and en-route charging operators
Ofgem’s Guidance should not cause too many issues for persons on-selling electricity to en-route and destination charging operators (such as supermarkets or motorway service stations). This is because such person should be able to take advantage of the Resale Exemption referred to above (see this paragraph). However, this will only apply where all electricity supplied to the chargepoint has been sourced from a licensed supplier, which may not always be the case for those with onsite generation (see below for more on this).
Where a person sells electricity to a chargepoint using power it has generated itself (whether or not in combination with electricity received from a licensed supplier), the situation is less straight-forward.
In such circumstances, it appears that such persons would need to rely on the small supplier exemption to avoid the risk of being in breach of the Act. This exemption may apply provided the person only supplies electricity it has generated itself and does not supply more than 5MW of electrical power at any time, calculated on a UK-wide basis(the “Small Supplier Exemption”). This will not apply, however, where there is a need to supplement onsite generation with electricity purchased from a licensed supplier.
In addition, the Onsite Supply Exemption which may be available to landlords (see paragraph here) seems unlikely to apply to persons selling electricity to chargepoint operators. This is because this exemption requires all electricity which is on-sold to be consumed by the recipient. Given chargepoint operators will generally not be consuming the electricity themselves, this exemption seems too far a stretch to provide any meaningful comfort that a licence will not be required.
This means that, where the Small Supplier Exemption does not apply as described in this paragraph, current legislative arrangements may prove to be a barrier where onsite generation is used to supply electricity directly to chargepoint operators.
In such circumstances, careful planning and structuring will be required to ensure there is no risk such persons will be considered to be in breach of the Act. For example, it may be possible to structure cabling and metering to ensure chargepoint operators are able to secure their own supply contracts directly with a licensed supplier, or to ensure that electricity from onsite generation cannot be used to supply the chargepoints.
Contractual solutions may also be possible. For example, it may be possible for the person supplying the chargepoint to sell all electricity generated onsite to its licensed supplier, allowing the ‘sleeving’ of this power into its supply contract; in a similar fashion to the sleeving of power used in many corporate PPA arrangements. This should mean all power used to supply chargepoints would have been supplied by a licensed supplier, permitting the Resale Exemption referred to in the paragraph here to be relied upon. However, the time and expense which may be incurred in putting place such arrangements may themselves prove a barrier to deployment.
Although unlikely to be an issue in the short term, there is a risk that the viability of vehicle to grid (“V2G”) services may be inadvertently affected by the provisions of the Act and Ofgem’s Guidance.
The Ofgem Guidance indicates that electricity exported by an EV to a chargepoint may be considered supply, depending on how metering is arranged. For residential EV drivers, this should not be a problem as they should fall within the Small Supplier Exemption. However, for large fleet owners who exceed the 5MW Small Supplier Exemption threshold, there is a risk that the export of power to chargepoints could trigger the requirement for a supply licence.
It seems unlikely that Ofgem or BEIS would ever intend for EV fleet owners to be caught by the supply licensing regime. This is likely to be another case of legislation not keeping up with EV developments and we would hope that this position is clarified by Ofgem in the near future. BCLP has contacted Ofgem for their views on this and, at the time of publishing is yet to receive a response. This article will be updated once a response is received.
The issues referred to above emphasise the need to fully consider and plan around the existing regulatory framework when planning commercial models for EV charging. Of vital importance will be ensuring that the contracts underpinning the chosen model properly demonstrate that the requirements of the Act, and any exemption relied upon, have been met.
Such issues also make a strong case for reform; highlighting the outdated nature of the existing licence exemption regime. Modernisation would allow the exemption legislation to be updated to properly cater for the changing energy landscape, with a proper consideration of the increasing role of onsite generation and EV charging business models (including V2G).
The recent report issued by the National Infrastructure Commission’s Regulatory Reviewentitled, “Strategic investment and public confidence” (October 2019), seems to agree, concluding that the UK’s regulatory system must adapt to meet the demands of the future and secure the strategic investment needed in the energy, water and telecoms sectors to reduce emissions, improve digital connectivity and build resilience to floods and drought.
It should be noted that Ofgem’s Guidance is not binding and the rules governing licence exemptions are complex. We recommend that anyone looking to put in place EV charging arrangements seeks early professional advice.