29 October 2012: The GLA are apply to the energy regulator Ofgem for a ‘junior or sometimes known as ‘lite ‘ electricity supply licence. This allows for smaller electricity generators to sell their electricity at market value. The approval form sets out that “the application to Ofgem [is] for a licence lite licence so the GLA can buy the electricity produced by London boroughs and other public sector decentralised energy generators in London and sell it at proper market rates”. This project builds on an earlier GLA project (details here).
The background to this issue is actually quite simple but solutions complex! Luckily some helpful commentaries are posted on the web by Carbon Limited and also law firm Nabarros. At the heart of the argument is that smaller generators are often in poor bargaining positions with the electricity retail market when wanting to sell their electricity. The true value of the electricity generated by a decentralised CHP, or PV array, could be realised by selling the electricity direct to consumers (very roughly say, around 12-14 pence per unit) rather than the wholesale market (again roughly, but say 4-6 pence per unit).
However, to do this, an electricity supply licence (for generators exporting more that 2.5 MW) is, in most instances required, and holding such a licence places a number of very complex and costly requirements on the licence holder, effectively creating a barrier to entry for smaller generators in this market. Recognising this situation, Ofgem introduced arrangements for a new ‘lite supply licence’ which – in theory – would allow the holder to sell their electricity more widely but provided exemptions to these smaller generators from the requirement to be involved in a number of complex electricity market processes, as would normally be required under a ‘full’ supply licence conditions (see the ‘Final Proposals document by Ofgem posted here for more on this).
In practice however, though a project with a number of London boroughs looked at this issue earlier this year, no participants have applied to hold such a licence. Hence, with this action, the GLA is looking to test Ofgem’s process and apply for this new licence and support the development and production of decentralised energy supply in London.