Our View on the Government’s Current Position on the Local Electricity Bill
The Energy Minister, the Rt. Hon. Anne-Marie Trevelyan MP, has responded to calls from the public and Parliament for the government to support the Local Electricity Bill.
In short, the Minister states that the Bill is not needed, as existing mechanisms are in place to support small-scale renewable energy generation. The evidence overwhelmingly shows that existing mechanisms are wholly inadequate. Below are the Minister’s points and our responses to them.
Our Responses to the Minster
The Minister says, “The Bill currently appears to have the effect that generators who want to supply local communities would be carved out of the current supplier licensing regime and be exempt from contributing to network costs."
Our Response: Nowhere in the Bill is it stated that local suppliers of electricity would be exempt from contributing to network costs. Rather, the Bill would make the network costs and other related start-up and running costs proportionate to the size of the operation. This is clearly needed; currently none of the existing community energy groups in the UK are licenced to sell their electricity directly to local customers, because the costs of doing so are so high that they restrict market entry for all but national-scale organisations.
The Minister says, “A range of signals exist today to encourage generators to locate close to sources of demand….Ofgem, are working to reform these signals through improvements to network charges and are also working to develop local markets for flexibility that will allow local solutions to be implemented.”
Our Response: These signals do address the structural problem of disproportionate costs and created by existing regulations faced by prospective local suppliers.
As of 2020, UK community energy contributes 265 MW of renewable electricity to the system [1]. Yet a government report [2], published in 2014, stated that the community energy sector could deliver 3,000 MW of generating capacity by now. It is hard to imagine a greater failure of potential.
We welcome the intentions of Ofgem to address the challenges of establishing local supply and the work that they are doing to reform signals and develop local markets, and we hope that this work can inform and contribute towards improving the Bill. We would like to work with officers at Ofgem to reach agreement on the best mechanisms to enable community energy generation to flourish.
The Minister says, “Artificially reducing network costs for local electricity suppliers, as seems to be the implication of the Bill, is likely to be distortive which would mean higher costs falling on other consumers, which would only increase as more exempted local suppliers come on stream.”
Our Response: We are not calling for market distortion: just the opposite. We are calling for a level playing field, i.e. changes to the rules governing the market so that an energy supplier faces costs proportionate to the size of their business.
The energy market is currently highly distorted – in favour of large-scale energy companies. This distortion means that only companies operating at national scale are able to run viable energy supply businesses. This is because of the very high setup and running costs involved in being a licensed energy supplier.
The Minister says that BEIS and Ofgem have launched initiatives to promote the deployment of small-scale renewable energy, and gives examples of the Local Energy Programme, the Smart Export Guarantee (SEG) and electricity licence exemptions.
Our Response: We welcome these initiatives and mechanisms, but they do not fix the fundamental problem that the costs that community renewable energy generators face in selling their electricity locally are so large that they make doing so impossible.
None of the existing community energy groups in the UK are licenced to sell their electricity directly to local customers. Furthermore, community energy generation has only grown to the derisory amount stated above. This clearly shows that the flexibilities and allowances for local supply that the Minister refers to have not delivered.
Making the costs of selling locally generated renewable energy to local customers proportionate will solve the problem, making it possible for local energy suppliers to exist and for the huge potential for more community renewable energy generation to be realised. The Bill would create this solutions by giving Ofgem the duty to make costs proportionate.
The Minister says, “Ofgem’s Licence Lite regime is another arrangement that removes many of the burdens from a prospective supplier, reducing the cost and complexity of entering and operating in the market.”[3]
Our Response: Although the intention behind Licence Lite was commendable, it clearly has not delivered what it intended. Only three such licences have been granted since it was established in 2009 [4] and none of them to community-scale energy generators wanting to sell their energy locally. The key flaw in Licence Lite is the need for local renewable generators to partner with a willing licensed energy utility.
The Local Electricity Bill presents a needed climate solution which we can all work together to implement ahead of the UK’s COP26 presidency. 257 MPs from a broad cross-party basis have already stated their support for the Bill, along with a supportive coalition of 495 community groups, 395 local councils and 74 national organisations.
We therefore call on the Government to support the Bill and ensure that it becomes law.
[1] Community Energy England: State of the Sector Report 2020. https://communityenergyengland.org/files/document/484/1615989181_CommunityEnergy-StateoftheSector2020Report.pdf
[2] The Department for Energy and Climate Change; Community Renewable Electricity Generation; January 2014.
[3] Written questions, answers and statements; UIN 154599, tabled on 19 February 2021. https://questions-statements.parliament.uk/written-questions/detail/2021-02-19/154599
[4] Licence Lite section of Ofgem website, accessed 20th November 2020