Community energy and adding value or reducing somebody else’s profit

One of the holly grails (we have many) has been to see how we could use current energy trading mechanisms to add value to locally generated renewable energy but also could local communities gain a direct benefit from this energy other than simply selling and gain some income. e.g.Can they buy their local energy cheaper? What we have been looking for is some form of offset. Terms you may come across for this trading include netting, balancing, sleeving, wheeling which are all variations on this energy trading aspect e.g. i can produce energy in a certain place and then can a community, charity consume that energy in another place. Can we join them together in a trading way and reduce the middle mans margin? The current situation is that you will have a power purchase agreement for the energy you use and a separate power purchase agreement for any energy you generate which are completely separate. (5p for export and 10 to 15p for import – there is a difference!)

We commissioned a piece of work to develop a brief for further work…but the brief has turned into a bit of a dead-end. The government in its good intention of simplifying tariffs, energy acts and regulation, large admin cost for billing are all stacked against a community or charity moving energy across the grid for local small scale consumption. Even setting up your own private wire system can result in breaching a regulation or two because of the removal of competition. But we are not ones to give up quickly and there is a glimmer of hope with the use of smart metering and developing something special. Early days and a contractual nightmare for the pioneers in this area. But the added value for communities, charities and tackling fuel poverty are clear to see.

Here is an overview and abstract of the recent research work (J McDermot)

The basics of electricity supply.

Electricity suppliers are licensed by Ofgem to supply electricity to customers and charge them for their consumption through appropriate metering and invoicing.

The suppliers buy electricity from licensed electricity generators which may be a third-party such as The National Trust or be the suppliers themselves.   The electricity reaches the customer through the distribution network which is owned by electricity distributors (DNOS). Electricity generators and suppliers are governed by the Balancing and Settlement Code under which they have a contract for the amount of electricity they will supply to the national grid, or that their customers will consume, on a half hourly basis.  Charges are payable for any difference between the contracted and actual amounts.

Decentralised Electricity Sales

There are three options for selling electricity from a small-scale scheme:

1)   sell direct to a licensed electricity supplier. This  is the system that most small generators use and is the most straight-forward in terms of administration.

2)   sell to another consumer over the public network (through ‘sleeving’ or License-lite)

3)   Connect the consumer(s) directly to the scheme via a private wire, bi-passing the public network.

Third Party Netting or Sleeving

Linking energy generators direct with consumers is known as sleeving or third party netting and is basically a contractual Power Purchase Agreement.  The power purchaser will commit to a power purchase agreement at a price per MWh over a set period of time, or at a floating index price plus fees.  This is generally used for large consumers who may also be generating themselves, or be buying from a third party generator. Due to the complexities of the electricity supply market, any system for a small-scale generator selling electricity direct to the consumer over the public network would need to be administered by a licensed electricity supplier who can cover responsibilities such as Balancing and Settlement as well as metering and invoicing.  The scheme operator will also incur charges for using the public network which may include Transmission and Use of System Charges and (Distribution and Use of System Charges).

The drawback for any licensed electricity supplier offering a sleeving arrangement with domestic consumers is the large amount of administration involved in dealing with a number of households rather than one large business customer.  It is considered unlikely that a direct relationship between the National Trust and small users would result in lower electricity bills for the householders due to the potentially high costs of administering the scheme.


License-lite is another level of sleeving again more suited to larger generators and consumers.  As its name suggests, it is a type of electricity supply license enabling an organisation to take on some of the roles of an electricity supplier as  a license-lite supplier (LLS); however the LLS would need to work with an existing fully licensed electricity supplier or Third Party Licensed Supplier (TPLS) who would provide compliance with the Balancing and Settlement code, network connection agreements and other obligations.   The LLS would be responsible for the customer interface such as billing and invoicing, collecting payments, customer service etc.

CornwallEnergy, working with Nabarro, have developed a standard Supplier Services Agreement (SSA)  for the Greater London Authority (GLA) who have just applied for a License-lite in order to be able to buy electricity from the London Boroughs and other decentralized public bodies and sell it direct to consumers at market rates.

The GLA is the first party to apply for this license and there are still some remaining regulatory and market issues to resolve, as well as the costs of getting it to market, which should become clearer once the terms of the license are determined.

Unlicensed electricity supply

It is possible to be an unlicensed electricity supplier, but this appears to be very grey area with various legal difficulties and unlikely to be worth pursuing at this level. 

Private Wire

With a private wire system, the electricity generator connects directly with the consumer with its own cables, thus bypassing the public network.  This has been used in various large schemes, often CHP, for sites such as universities, schools or public buildings.  Top up and backup for the private network is brought in from the public network at a single connection point, often where the generating plant is located.

The two main barriers to using option are:

  • The disruption and cost of installing the cables for a private wire network in existing housing stock
  • The need for commitment from all the households.
  • Possible concerns re monopolies

The limits for generation, distribution supply of electricity without a license can be found in the Electricity (Class Exemptions from the Requirements for a License) Order 2001.

Community Benefits

The most straightforward way of providing community benefit would be to make a direct payment to a community fund, as is fairly standard practice with renewable energy installations.  For the National Trust, if they haven’t done so already, discussions with an electricity supplier such as Good Energy regarding sleeving for their own electricity consumption may be beneficial.

The future

As smart meters become more widespread it may become easier to become a small-scale electricity supplier.   Project is being developed which looks at getting a community together (Community ESCO or CESCO) with an aggregated demand, providing half hourly metering and going into some kind of settlement arrangement.  There would be a virtual meter allowing anyone who opts into the CESCO to use energy before it is exported

About claireolivernt

Hello! I work with the Environmental Practices team for the London & South East (LSE) National Trust.
This entry was posted in Community energy, Wales. Bookmark the permalink.

2 Responses to Community energy and adding value or reducing somebody else’s profit

  1. Chris Allen says:

    Hi Claire
    I would be interested in having a conversation as above is very interesting.
    Kind Regards
    Chris Allen
    (work in the Strategy and Development Dept in Elexon, who run the Balancing and Settlement Code)

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