Navigating the supply licence exemption landscape in Great Britain: key regulatory developments and the interface with reduced electricity bills
Supplying electricity without a licence, where permitted by an exemption under the GB electricity regulatory regime, has for some time presented a number of commercial opportunities for entities across the electricity value chain.
Where available, such supply reduces barriers to supplying electricity – for example for industrial and commercial sites with dedicated directly connected generation, for community energy schemes, and for landlords providing power to their tenants.
As things stand, such licence exempt supply can also have a fundamental commercial impact – it avoids the automatic application of the levies and network charges typically incorporated in the power bills of licensed suppliers. As such, together with the narrow variants of electricity discounting schemes being introduced in respect of licensed supply bills, licence exempt supply can be a very significant tool in reducing electricity costs.
The legal architecture behind the scenarios in which licence exempt supply is permitted can be notoriously impenetrable. Further complexity is being added to this equation as challenges, such as grid constraints, and opportunities, such as reduced electricity bills and metering reforms more widely facilitating licence exempt supply, is leading to the exploration of ever widening use cases for licence exempt supply. This must all also be placed against the widening set of case/sector specific electricity discounting schemes in respect of licensed supply and the political sensitivity in respect of energy costs.
This Legal Update pulls together where we now stand on the supply licence exemption regime and the wider electricity bill discounting landscape. It provides an overview of some key regulatory developments at varying stages of maturity affecting this landscape, including Balancing and Settlement Code (“BSC”) modifications, updated guidance on the Class A exemption, the recent review of the Maximum Resale Price (“MRP”) regime, and the recently announced initiative for generator fixed-term contracts.
Key Regulatory Developments at a Glance
Licence Exempt Supply Over the Licensed Distribution Networks
The drive to facilitate community energy schemes in particular has led to recent overdue reforms to the BSC to reflect that in certain limited scenarios the existing supply licence exemption regime in principle permits supply which takes places over licensed distribution networks – rather than always inherently being limited to off-grid “private wire” schemes.
These reforms to the BSC have been supplemented by updated government guidance in respect of the application of the supply licence exemptions regime in the context of the “Class A” class exemptions of core relevance to this scenario.
The question of how the benefit of the savings achieved via licence exempt supply over the licensed networks is shared between relevant generator, the customer offtaking the relevant supply, and the licensed supplier facilitating the arrangement continue to be a live debate in the industry. As does the concentration of those avoided costs within licensed supply. And the impact and application of the strict and cross corporate group megawatt limits under the Class A exemption continues to need great care.
The key components of the relevant regulatory changes/publications run as set out in the table below. Further detail on P441 an P442 and the “Class A” supply licence class exemption is further set out later in this Legal Update.
| Regulatory development | Applies to | Description | Who bears the cost | Impact on commercial case for licence-exempt supply | Status |
|---|---|---|---|---|---|
| BSC Mod P442 | Generators seeking to supply the electricity they generate over the licensed grid on a licence-exempt basis, and their customers. | Provides for the identification of the volumes of electricity so supplied and the exclusion of these volumes when Capacity Market (“CM”) and Contracts for Difference (“CfD”) levies are calculated. | Other electricity consumers (avoided levies are redistributed). | Adds to use cases for licence-exempt supply (by providing clearer routes to supplying electricity on a licence-exempt basis over the licensed grid, and thereby avoiding non-commodity costs).
(Erodes case for “private wire” networks, given potential for similar benefits to be achieved for supplies over licensed grid.) | In effect from 27 February 2025. |
| BSC Mod P441 | Renewable generators seeking to supply the electricity they generate locally over the licensed grid on a licence-exempt basis, and their customers. | Provides for netting of volumes recorded by relevant meters in that local area, providing opportunities for savings on network charges (as well as policy levies). | Other electricity consumers (levies are redistributed). | Advanced industry proposals awaiting Ofgem approval – seeking implementation in Jun or Nov 2026 (depending on timing of Ofgem approval). | |
| “Class A” supply licence exemption – updated government guidance | Generators seeking to supply the electricity they generate on a licence-exempt basis, and their customers. | Clarifies a number of aspects of the “small suppliers” electricity supply licence exemption, including that the group-wide 5MW (and 2.5MW to domestic) limit on amount of electricity supplied is absolute (irrespective of the licence exemption basis on which any electricity over that limit is supplied). | N/A | Reduces use cases for licence-exempt supply (e.g. by clarifying that larger generators must look at the aggregate amount they supply across their portfolio where looking to be within the “Class A” supply licence class exemption). | Published January 2026. |
Widening of maximum resale price for resold electricity
For those who resell electricity – such as landlords and various other businesses offering on-site power management services – there is a well-established limit on charging for this where electricity is for domestic use. Ofgem are now considering expanding this to resale of electricity to non-domestic customers – which would be a significant move given the range of arrangements in please for resale of power to commercial and other non-domestic premises.
| Regulatory development | Applies to | Description | Who bears the cost | Impact on commercial case for licence-exempt supply | Status |
|---|---|---|---|---|---|
| Maximum Resale Price Ofgem Call for Input | Persons (such as landlords) seeking to resell electricity they import from the grid on a licence-exempt basis, and their customers. | Proposes measures including the potential extension of the maximum resale price to non-domestic supplies. | N/A | If implemented, profoundly undermines the commercial case for any projects reliant on selling power imported from the grid at a mark-up to commercial customers. | Ofgem Call for Input closed 4 December 2025 – Ofgem update expected in Spring 2026. |
Electricity bill discounting schemes in respect of electricity from licensed suppliers
The pros and cons of offering discounts on electricity bills to particular sectors/sub-sectors remains politically sensitive. On the one hand such measures can assist in the common concern that the GB market’s high electricity prices are a material barrier to internationally mobile business/sectors operating in GB – whether industrial or AI data centres. On the other hand, absent significant market reform the factors driving these high prices will remain – which means that offering discounting to one set of users can be seen as simply concentrating costs on a narrower customer base. This is discussed in further detail towards the end of this Law-Now.
Against this policy tightrope, we now have a growing array of different electricity discounting schemes for certain different high energy using sectors/sub-sectors – each of which are based on variants of disapplying policy levies from the bills of those who qualify for the scheme.
Details are as follows:
| Regulatory development | Applies to | Description | Who bears the cost | Impact on commercial case for licence-exempt supply | Status |
|---|---|---|---|---|---|
| British Industry Supercharger (“BIS”) | Consumers in “Energy-Intensive Industries” (“EIIs”) taking their electricity supplies from licensed suppliers. | Provides exemptions from policy levies and discounts on network charges for these consumers. | Other electricity consumers (levies are simply redistributed) | Eroding the commercial advantage of licence-exempt supply for certain categories of consumer (by reducing electricity bills for certain categories of consumers taking their supplies from licensed suppliers, and thereby the extent of the potential differential versus licence-exempt suppliers). | In effect from April 2024. |
British Industrial Competitiveness Scheme (“BICS”) (see our previous article) | Consumers in certain electricity-intensive manufacturing sectors taking their electricity supplies from licensed suppliers. | Provides exemptions from policy levies for these consumers. | Remains under consultation – suggestion appears to be some level of centralised taxpayer funding to mitigate the impact of these costs being redistributed to other electricity bill payers. | Government consultation closes 14 May 2026, with a view to exemptions commencing in April 2027 (with some level of backdating). | |
| AI Growth Zones – electricity discounts | Datacentres located in AI Growth Zones taking their electricity supplies from licensed suppliers. | Provides fixed location-based discounts on electricity costs for these consumers. | TBC – implied that this is picked up by other electricity consumers via their BSUoS charges (i.e. the benefit of avoided constraint costs is shared between datacentres and consumers). |
More on the P441 and P442 BSC Modifications: Bringing Clarity to Arrangements for Licence-Exempt Supply over Licensed Networks
As introduced above, licence-exempt electricity suppliers, like operators of power generation, that supply their electricity over “private wire” distribution networks directly to the end-consuming premises (ie power networks owned and operated outside the licensed distribution network companies) typically avoid many categories of “non-commodity costs” that are generally applied to power taken from licensed suppliers:
- Certain Government energy initiatives are funded via “policy levies”, intended to be payable by licensed electricity suppliers (and passed through to their customers). This includes the CfD and CM mechanisms. The amounts of the policy levies payable by a licensed supplier are, broadly, calculated based on the volumes recorded across the settlement meters to which that supplier is registered. Licence-exempt supply is not intended to be subject to these charges.
- Licensed electricity network operators also impose network charges on licensed electricity suppliers for use of their networks (and licensed suppliers again pass these charges through to their customers).
This leads to a material commercial comparative advantage to unlicensed supply, which is one important reason why directly connected private wire generation (and various other forms of project using licence exempt supply) can be an attractive proposition.
However, where such licence-exempt electricity suppliers need to supply electricity over the network of a licensed electricity distribution network operator (“DNO”) in order for it to reach the consuming premises there has to date been some uncertainty over how metering and settlement work in this context and the extent to which the above savings on non-commodity costs can be achieved.
Since only licensed suppliers may take responsibility for meters at the boundary of DNO networks and utilise industry “use of system” arrangements with respect to such networks, the involvement of a licensed supplier is needed to facilitate any licence-exempt supply over a DNO network. Industry rules have therefore traditionally often treated all volumes metered at the DNO network boundary as if they are licensed supply (e.g. for the purposes of calculating the amount of the policy levies payable by the licensed supplier), even if they in fact include exempt supply volumes. Recently implemented and near-implemented industry amendments to the BSC have sought to address these issues.
P442: Correct Reporting of Exempt Supply Volumes
BSC modification proposal P442, titled “Reporting chargeable volumes for exempt and licensed supply” came into effect on 27 February 2025. It addressed a long-standing issue where a single metering system records both licensed and licence-exempt supply. Without a mechanism to split these volumes of electricity supplied on a licence exempt basis risked simply being bundled in with licensed supply volumes such that CM and CfD levies where applied across all.
This has been rectified via this BSC modification introducing an “Exempt Supply Notification Agent” (“ESNA”) role to assess and notify BSC central systems of the split between licensed and exempt volumes. Only the licensed-supply element is then treated as chargeable for CM and CfD levy purposes.
P441: Formalising Complex Site Classifications
BSC modification proposal P441, titled “Creation of Complex Site Classes”, seeks to formalise similar recognition of supply licence exempt supply but specifically in the context of so called “Complex Sites” – which are typically larger higher energy consuming sites with eg multiple metering points and/or their own on-site generation/storage.
The change introduces six classes of site and associated metering arrangements. With specific criteria, clarifying netting arrangements, and establishing defined processes for each category. Classes 1–4 codify existing standard arrangements. Class 5 permits netting of import and export at separate boundary points for local energy schemes. Class 6 captures other analogous non-standard arrangements, subject to BSC Panel approval. At the time of writing, P441 is at the Final Modification Report stage and is awaiting Ofgem approval.
Practical Significance
The P441 and P442 modifications have significant practical implications for generators wishing to supply electricity on a licence-exempt basis over a DNO network:
- P442 provides a method for identifying the proportion of supply volumes at DNO network boundary meters that are licence-exempt supply, and excluding these from the volumes that count towards CM and CfD levies, thereby in principle improving practical and financial viability for distributed generation projects.
- P441 provides a clearer regulatory pathway for local energy schemes through Complex Sites, potentially supporting community energy initiatives. P441 is set to introduce into the BSC a mechanism for the volumes imported and exported across certain types of “Complex Site” to be netted for the purposes of settlement. The eligibility criteria for this mechanism are more exacting than for P442: for meters to qualify as a relevant kind of “Complex Site”. In addition to the need for the supplier to establish a supply licence exemption, there are requirements for: (i) locality (all relevant meters must be downstream of the same single primary substation); and (ii) sustainability (the power supplied must be generated from a renewable source or a “good quality” combined heat and power project). The netting of import and export volumes within Complex Sites will, at least initially, result in a saving on Balancing Services Use of System (“BSUoS”) charges (but not distribution or transmission use of system charges, for which the “gross” metered volumes will still be used). The extent to which this BSUoS saving by virtue of P441 should be allowed to continue in future is subject to post-implementation review, which will assess whether the wider network benefits outweigh the impact on non-participating electricity consumers; Elexon may in future recommend removal of the benefit if they do not.
While not inherent in the legal text of the BSC amendments, guidance from both Government and Ofgem suggests that these BSC modification proposals are intended to apply for the benefit of only generators supplying electricity under the “Class A: small suppliers” electricity supply licence exemption (see following section).
Class A Licence Exemption: Key Clarifications
The Department for Energy Security and Net Zero (“DESNZ”) updated its frequently asked questions guidance on electricity licence exemptions in January 2026, providing clarifications for those operating under or considering the Class A electricity supply licence exemption.
What is the Class A Exemption?
Class A, under Schedule 4 of The Electricity (Class Exemptions from the Requirement for a Licence) Order 2001, permits generators to supply self-generated output to domestic and/or commercial consumers without a supply licence, subject to a 5MW limit (of which no more than 2.5MW may be supplied to domestic consumers) across the entirety of their corporate group.
Key Practical Points
The guidance clarifies that:
- The 5MW limit is absolute (irrespective of the basis on which any electricity is supplied over and above the 5MW limit). While generators may supply multiple consumers simultaneously provided the aggregate does not exceed the limit. While exporting power onto the licensed grid is typically viewed as not classing as “supply” and therefore not counting towards this limit, this clarification does make clear that a generator would need to look across to all its licence exempt suppliers (such as private wire arrangements using different supply licence exemptions or resupply of electricity) across its whole corporate group).
- As noted above, since Class A licence-exempt suppliers do not participate in industry arrangements for use of DNO networks, where they wish to supply electricity over licensed networks, they in practice need to contract with a licensed supplier for metering, data collection, settlement, use of the licensed distribution system and potentially customer-facing functions.
- The Class A exemption only permits supply of self-generated power—it does not permit buying and reselling power for back-up or top-up purposes. When the customer’s demand exceeds the amount generated by the exempt supplier, the customer will need separate arrangements with a licensed supplier to meet this demand.
- Responsibility for compliance with the regulatory obligations of licence-exempt electricity suppliers rests with the generator relying on the exemption (irrespective of whether the generator has engaged the services of a licensed supplier). Schedule 2ZB to the Electricity Act 1989 sets out ongoing duties including billing, contractual requirements and switching obligations.
Maximum Resale Price: Current Regime and Recent Consultation
Ofgem launched a Call for Input on the MRP on 9 October 2025, which closed on 4 December 2025. This was the first substantive review in over two decades and focused on whether the cost pass-through model remains fit for purpose, whether protections should extend beyond domestic end use, and how the MRP interacts with the transition to a low-carbon energy system. Ofgem indicated it would publish outcomes in Spring 2026.
How the MRP Operates
The MRP, established under section 37 of the Gas Act 1986 and section 44 of the Electricity Act 1989, empowers Ofgem to impose a cap on the price at which gas and electricity imported from the grid can be resold. To date, Ofgem has exercised this power only in the context of electricity supplied for domestic use, in the context of which any person re-selling this power can do so on no more than a cost pass-through basis: the resale price cannot exceed the price paid by the reseller to the supplier.
The MRP covers unit rates, standing charges and metering fees, but not additional charges such as billing costs, on-site network maintenance, or sub-metering.
The MRP currently applies only when the end use is domestic. Since 2014, the MRP has also excluded the resale of electricity from dedicated EV charging infrastructure, a decision taken to encourage investment in chargepoint infrastructure.
Application to Exempt Suppliers
Where resale occurs between separate premises, the reseller is “supplying” under the Electricity Act 1989 and must hold a licence or be exempt. Class B provides for such “on-supply” of power imported from the grid; resellers operating under Class B to domestic consumers are subject to both MRP rules and licence-exempt supplier obligations.
Key Issues Considered
Key areas of inquiry in Ofgem’s Call for Input included: whether the cost pass-through approach sufficiently protects consumers; whether non-domestic consumers should be brought within scope; how the MRP can facilitate low-carbon investment; and whether the 2014 EV charging exclusion remains appropriate.
Extension of the MRP to Non-Domestic Consumers
One significant question is whether the MRP should extend to non-domestic consumers. In 2003, Ofgem concluded non-domestic consumers could negotiate fair charges; however, Ofgem has since then increased protections for micro and small businesses in other areas, recognising that smaller businesses cannot always hold their own in negotiations.
If the MRP is extended to non-domestic consumers, this could have material implications for exempt suppliers on-supplying grid electricity to commercial premises over private wire networks.
Levies and Network Charges: Who Bears the Costs?
As introduced above, underpinning a number of the regulatory developments discussed above is a fundamental political question: who should bear the costs of exemptions and reliefs from electricity policy levies and network charges, given the underlying costs generally remain to be paid for by someone? As explored in our BICS update, this reflects broader sensitivity around how electricity costs—including net zero policy costs—are distributed across different market participants and consumers.
The practical effect of the exclusion of licence-exempt supply volumes from the CM and CfD levies pursuant to P441 and the savings on BSUoS pursuant to P442 is that the fixed costs of these programmes are redistributed across other licensed supply customers—i.e. the costs avoided by exempt suppliers are spread across remaining market participants and ultimately passed through to other consumers. The position is similar for the exemptions from policy levies available to EIIs pursuant to the BIS scheme.
By contrast, the Government has stated an intention to fund/offset the cost impact to other users of BICS through a combination of changes within the energy system (such as moving RO/FIT indexation from RPI to CPI), removal of Carbon Price Support from April 2028, and Exchequer funding – with the stated intention that there will be no increase in domestic and non-domestic bills.
This represents a notable policy shift towards measures that reduce costs for licensed supply customers without concentrating those costs on other bill payers. The contrast with licence exemptions—which naturally have the effect of removing certain supply volumes from the levy base, thereby socialising costs across remaining consumers—is significant. The political question of whether and how to reform how the exemption of licence-exempt suppliers from non-commodity costs is funded to align with this newer approach remains open.
Conclusions
For developers seeking to optimise energy costs, a key decision is whether to procure from a licensed supplier or through a licence-exempt arrangement (i.e. often direct supply from a generator). Significant savings on policy levies and network charges are available via private wires from nearby generators, and P442/P441 has expanded applications for licence-exempt supply over the licensed grid.
Gradual erosion of the benefits of licence-exempt supply
The cost advantage associated with using licence-exempt supply has long carried regulatory risk: sweeping legislative change could eliminate savings on non-commodity costs. This crystallised in the Government’s 2020 call for evidence, which asked whether licence-exempt suppliers should pay their “fair share”, and in proposals to “rebalance” bills by shifting costs to gas or general taxation.
For the time being, though, it appears that change is occurring gradually through more targeted policy initiatives: reducing the scope for realising savings via licence-exempt supply (e.g. by tightening access to the Class A supply licence exemption) while introducing measures to reduce costs for licensed supply customers, thereby narrowing the differential between licensed and licence-exempt supply costs.
Implications for generators and consumers
For developers, the picture is nuanced: P441 and P442 have reduced technical barriers to licence-exempt supply over the licensed grid and allow for potential significant costs savings; but the benefits of licence-exempt supply are being eroded by other initiatives.
Businesses considering supplying electricity on a licence-exempt basis or taking such supplies may wish to consider proactive engagement with these developments – including responding to consultations – to try to shape the discussion on these issues going forward.
