While local supply is currently challenging and the licence exemptions regime is complex, some code modifications are underway which may enable new models to progress.
Balancing and Settlements code modification P441 seeks to enable local supply of energy using the distribution network. If enacted, this could, in theory, reduce the non-commodity costs for community generators further (as such models would only use the distribution network and so could be exempt from transmission network charges). However, the details of this are yet to be confirmed.
P441: what is it for?
“Creation of complex site classes” is a code modification which enables renewable generation to be matched with local demand, providing both are connected to the same primary substation. Complex sites were initially conceived as a method for universities or sites with campuses to maximise on-site consumption. By operating the local supply model as a complex site under a single primary substation, generators pay lower network costs than they would have if they were treated as individuals, because they do not touch the transmission network. These savings are then shared across generators and demand customers. This modification is looking to clarify the treatment of ‘complex sites’ to allow for such models to be rolled out
Balancing and Settlements code modification P442 also came into force in February 2025. This provides a technical fix to ensure that suppliers who facilitate local supply through sleeving arrangements (in a sleeved PPA, for instance) can accurately meter and apply cost exemptions for licence-exempt supply.¹
P442: what is it for?
Prior to the introduction of P442, licenced suppliers who facilitated licence-exempt arrangements were struggling to accurately meter and apply exemptions to licence-exempt supply. In some cases, where a licenced supplier was facilitating a licence-exempt arrangement, licence-exempt supply was still being included within supplier calculations of their overall policy costs. To fix this, P442 enables a new technical methodology which allows licenced suppliers to ‘net off’ licence-exempt supply before any network or policy costs are applied, ensuring exemptions are applied accurately.
While exemptions from certain policy and network costs are positive for community energy generators supplying their electricity locally, it is worth noting what this means for other consumers. Because network and policy costs are recovered by suppliers via all consumer bills, the costs avoided by exempt generators will fall on other consumers not part of the exempt supply arrangement. This is potentially a fairness issue, although Ofgem notes that they have discussed this internally and do not foresee licence-exempt local supply arrangements happening at a big enough scale to cause a noticeable increase in consumer bills.²
¹ Ofgem, 2024. Approval of BSC Modification P442.
² Ofgem, 2024. Approval of BSC Modification P442.
