Renewables investment risk as industry awaits electricity licence exemption clarity

Jeremy Chang of Pinsent Masons, who specialises in energy market regulation, was commenting after the UK government published a summary of the responses it received to a call for evidence on the electricity licence exemptions regime. The summary of responses paper (27-page / 356KB PDF) comes nearly three years since the call for evidence was issued.

In its paper, the government acknowledged how there is uncertainty over how the class exemptions specified in law – specifically, the Class (Exemptions from The Requirement For a Licence) Order 2001 – should be interpreted, and industry’s concern that this is “potentially creating a ‘roadblock’ for further investment, particularly in net zero projects but also in other small scale developments”.

In this context, Chang said industry had been hoping that the government would set out formal proposals for reform in its summary of responses paper. However, instead, the government has only said it would “consider representations received … with a view to possible options for change to exemptions guidance, policy and/or legislation to reflect respondents’ views and concerns” and that it “will also consider views given in meetings and other contacts with stakeholders”.

No timeframe has been indicated for when options for reform might be consulted on in more detail.

“The government’s publication of the summary of responses to its call for evidence is perhaps a missed opportunity,” said Chang. “Despite the fact that the market has waited nearly three years to see how government intends to reform the Order so that it is fit for purpose, no concrete proposals have been put forward. In the meantime, projects must continue to grapple with the complexities of the Order, which has been described by some as opaque and difficult to interpret. It is hoped that the continued uncertainty in relation to the enduring regulatory framework will not put off investment.”

“What is clear is that when the government’s proposals are published, they should be designed to allow projects to come forward at a scale and pace which helps us achieve our net zero ambitions,” he said.

The Order sets out separate exemptions to the need for licenses to generate, distribute and supply electricity, respectively.

In relation to generation class exemptions, the government said the feedback it had received suggest these have helped to facilitate encouraging levels of small- and medium-scale generation, particularly in renewables. However, some respondents said they think generation thresholds for renewable technologies should increase to facilitate investment and that small-scale storage should be licence exempt.

On distribution, the government said that some respondents believe the existing exemptions to be “perfectly adequate” and that they are “being utilised without any significant concerns”. However, others believe the existing distribution class exemptions are “not adequate for modern distribution systems”, that further clarity and/or guidance is needed “to allow for full utilisation of class exemptions”, and that changes should be made to support electric vehicle charging and businesses “wishing to build private wire networks”.

In respect of the supply class exemptions, a number of respondents believed that supply class exemptions were adequate and incentivising, according to the government. However, others cited issues in interpreting definitions in the Order and called for thresholds for supply electricity to households to be increased, as well as for the widening of exemptions to allow private wire management and supply to be undertaken by third parties.

Experts at Pinsent Masons have previously highlighted how the existing exemptions could be made more generous and less difficult to navigate. However, they also said that the challenge for policymakers and regulators is to ensure that expanding the exemptions regime to encourage investment does not lead to a gap in funding necessary to operate and maintain electricity networks in Britain, given that beneficiaries of exemptions are not liable for payment of electricity licence fees.