Decentralised Energy

March 2014: As part of its ambition to be a ‘junior’ or ‘license lite’ electricity supplier, the GLA last week released a tender advert seeking the “provision of Electricity Market Services to an Applicant for a UK Electricity Supply Licence Services to the Greater London Authority (GLA).”

Under rules Ofgem issued in 2009 [and after a two year process (see para 3.59 (p99) of the 2007 Energy White Paper which kick started this activity!)] , Ofgem introduced additional licensing options to make it easier for small energy companies including decentralised energy schemes to operate as a licensed supplier on the public network. The key element of making a  ‘license lite’ supplier’s business  ‘easier’ is by releasing them from having to engage in a series of  complex electricity industry supply codes and actions (such as the Balancing & Settlement Code (BSC), data transfers, settlement, being party to the Master Registration Agreement (MRA), and being signed to the Grid Code and the Connection and Use of System Code (CUSC) – and more!)

However, the rules set by Ofgem still require the license lite supplier to have arrangements in place with a fully licensed third party, who is able to deal with these codes and action, and who can act on behalf of the license lite supplier to ensure that it is fully operating  under the rules of the electricity market. The tender released by the GLA is seeking to establish a relationship with a ‘third party full licensed supplier’ for these services. The key question to this whole process has always been  ‘what is the benefit to the third party – who has invested in complying with all these codes and actions – of offering these services to a license lite supplier’? The GLA tender is seeking to address this key issue and see if there is in fact any appetite in the market for a fully licensed supplier to offer these services to what is in effect a potential competitor.

Interestingly, the Mayor’s energy advisor, Matthew Pencharz, stated during an evidence session to the London Assembly Environment Committee earlier this week, that two companies have already expressed an interest in the tender to the GLA.

Some limited further details are posted on the TfL website here (TfL undertake tender work on behalf of the GLA)  – in the PQQ document under section 1.4.

“TfL is seeking tenders on behalf of the GLA for the provision of electricity market services as described below.

The GLA requires electricity market services to support an application for a GB electricity supply licence by the GLA under proposals of the UK Office of Gas and Electricity Markets Authority of 6^th February 2009 entitled – ‘Distributed Energy – Final Proposals and Statutory Notice for Electricity Supply Licence Modification (Ref: 08 / 09).

Under Ofgem’s proposals, Ofgem may enable an applicant for an electricity supply licence (in this case the GLA) to be granted a licence without the applicant needing to become a party to the Balancing and Settlement Code and Master Registration Agreement and other codes, providing the licence applicant has presented a realistic implementation plan for robust alternative arrangements with another licensed electricity supplier to provide services, to enable the electricity market to function without the GLA being a party to the relevant codes.

The GLA is seeking parties interested in providing or securing the provision of robust and cost effective alternative arrangements from a licensed electricity supplier that will satisfy these requirements of Ofgem.”

Why do all of this? The GLA’s ambition is to purchase decentralised energy systems exported low carbon electricity (mostly from CHP plants in London) and then sell this output to a single consumer – London Underground (one of the biggest electricity users in the UK) – passing more of the value of this purchased electricity back to the generator than is currently the case (estimated at between 10-20 per cent more according the Mayor’s energy advisor), helping improve the business case for more low carbon generation plant in London.

Further background to GLA’s work in this area can be found here.