In the September 2015 edition of our Decentralised Energy & Smarter Grids Bulletin we discussed the potential of Ofgem's (then) relatively new "Lite" electricity supply licensing option. We expected the Licence Lite regime could assist the viability of District Heat Networks by allowing surplus energy to be supplied directly to consumers via the distribution grid. But contrary to expectations, the Licence Lite regime never took off in any meaningful way. Two years on, with the first two Licence Lite applications now having been approved by Ofgem in as many months, it appears it may still have a role to play in the energy market.
Ofgem's goal in introducing the Licence Lite regime was to "ease potential barriers to entry faced by aspiring suppliers". Under a Lite supply licence, compliance with the various industry Codes usually required under a supply licence (the "Codes") is outsourced to a Third Party Licenced Supplier ("TPLS"). The idea is that the TPLS is a more experienced and resourced entity and therefore equipped to more efficiently deal with these costly and technically challenging aspects of the supply licence. The original intent of this was to help reduce the cost and complexity for small-scale (likely renewable) electricity generators, allowing them to more easily enter the retail market and facilitate local supply.
A number of years since its introduction, the first two approvals of Lite Licences have now come through from Ofgem. Notably, these approvals have not been in the portion of the generation sector at which the regime was initially targeted.
- EVenergi UK Limited
Perhaps the more interesting of the two approvals, the first Licence Lite approval was granted on 25 August 2017 to EVenergi UK Limited, a home and electric vehicle (EV) energy usage monitoring company. The TPLS in the arrangement is Corona Energy Retail 4 Limited. Although details of EVenergi's entry into the supply market are scarce, it is clearly planning on broadening its current offering to include some sort of electricity supply to end users. If the Government has its way, the growth of EVs in the UK is set to increase rapidly over the coming years. We would expect increasing numbers of companies involved in the EV market are looking to deploy innovative business models in the space, as demand and funding ramp up.
- PX Supply Limited
The most recent Licence Lite approval was granted on 18 September 2017, in relation to supply of electricity at an industrial chemicals complex in Hull. Ofgem have summarised it as supply to "only a single site located at Saltend Chemicals Park… during periods of outages". The TPLS under the arrangement is Coulomb Energy Supply Limited – a related entity to the applicant. There isn't much more to be said about this, other than with the 1200MW Saltend Power Station located adjacent to the facility it makes sense that supply be permitted during periods of wider power outage. The Licence Lite model appears to have provided a neat way to share expertise and create efficiencies across group companies.
One conclusion that can be drawn from the above is that the attractiveness of the Licence Lite regime is clearly not necessarily limited to the areas of the market to which it was originally aimed. Indeed given the regime was first introduced in 2011 with no successful applications until now, the evidence suggests it failed to address its goal of "easing barriers to entry" for those small-scale generators. The fact that relief from compliance with the Codes is the only aspect of the licensing regime that makes it "Lite" is one of the key issues – the remaining standard licence conditions continue to impose a high regulatory burden on prospective suppliers.
These recent approvals do however indicate that it is fit for purpose in certain situations. Prospective suppliers may see benefits in going down the Licence Lite path as an alternative to the restrictions imposed by the other primary route to supply, the "Class Exemptions Order", in particular in relation to output and location. Yet it remains to be seen whether this development is indicative of a wider trend, whereby the new wave of "smarter grid" companies (EV companies, aggregators, energy storage developers) seek to access another potential revenue stream through direct supply to end users. At the very least it shows that Ofgem have not limited the scope of the regime's application to its original intended purpose; as the UK's energy market evolves, Licence Lite may very well be an attractive option for a variety of entities along the electricity supply chain.