The Government’s “Call for Evidence” on the regime for exemptions from electricity licensing is due to close on 1st March 2021.
All those involved in the decentralised energy sector should pay attention to this and consider responding.
Whether you consider yourself to be a generator, distributor or supplier of electricity or involved in electricity storage or demand-side management or simply an owner or manager of property let to multiple occupier tenants, whether you realise it or not, you are likely to be relying on the class exemptions to avoid committing a criminal offence. Changes that might flow from this call for evidence could be good, bad or terrible for you. Having advised many businesses over the years on related regulatory issues we don’t want to understate the potential significance of changes in this area.
There are a number of problems with the class exemptions (under the Electricity (Class Exemptions from the Requirement to hold a Licence) Regulations 2001 (as amended) (Regulations)). Firstly, there are probably more people relying on them without realising it than there are those who are fully aware of the class exemptions and how they apply to their operations. Secondly, the drafting of the Regulations is complex and confusing leading to misunderstanding and potentially different interpretations. These are things that the Government could certainly do well to tackle. But, tackling them badly could make things more complicated or even make criminal what was previously lawful. This is definitely about the detail and getting it right. This cannot be taken for granted.
However, whilst the call for evidence asks for views on scope for reform, and focuses questions on the details of the Regulations, stakeholders would do well to thing about the broader context in which this review is being undertaken. The decentralised energy sector has suffered - and may suffer further - as a result of various charging reviews undertaken by Ofgem. These have been undertaken ostensibly with a view to ensuring that all stakeholders pay their fair share of the costs of operating the electricity system. The Government refers to this in its Call for Evidence. At face value, paying a fair share seems beyond reproach until you ask: fair for who?
The system of electricity regulation and licencing was set up for regulating a relatively small number of very large businesses involved in moving large volumes of electricity around the country and delivering it to a large number of consumers. The burden of complying with the heavy regulation of their activities is high but their business models are entirely dependent upon the transmission system. Decentralised energy businesses typically depend on the class exemptions to avoid being subjected to this system of licensing and regulation written for someone else. So regulation also serves as the industry’s way of keeping out competition. As a result, it stifles competition and innovation. And yet innovative decentralised energy business models can reduce the burden on the transmission system so who would think it fairer that they should bear a bigger share of the cost for its upkeep?
This Government has published its Energy White Paper and a 10-point plan to accelerate us towards a net zero energy system. It wants to encourage competition, investment and innovation, which we support and welcome. So why not use this review to give decentralised energy better access to the markets that they’re currently all but barred from participating in? This could involve more radical reform but even some relatively simple changes could help.
Take a look at our response to the call for evidence to see what we think.
