Trystan Casey
The UK energy market has witnessed a surge in the number of new firms in recent years, with around 40 companies currently registered in the country. To become an electricity supplier in the UK, you must obtain a licence from the Office of Gas and Electricity Markets (Ofgem). The licence application process involves submitting a signed application form, along with the required documentation and payment of a fee ranging from £350 to £1,050. Additionally, new entrants to the industry must comply with relevant regulations and complete all necessary market entry requirements, including qualifications such as the Supplier Volume Allocation (SVA) and Central Volume Allocation (CVA). It is also important to be aware of the National Security and Investment Act 2021 (NSI Act) and its potential impact on your licence application.
| Characteristics | Values |
|---|---|
| Entity | Any entity that performs an activity in the energy sector |
| Licence | Required to supply electricity to domestic and non-domestic premises |
| Licence issuer | Ofgem |
| Licence fee | Yes |
| Licence application | Signed application with all the information and documentation as set out in the relevant application regulations |
| Licence application guidance | Available |
| Multiple applications | Contact Ofgem in advance |
| Licence exemptions | Refer to the Gas Act 1986, the Electricity Act 1989, your legal counsel and the Department for Energy Security & Net Zero |
| National Security and Investment Act 2021 (NSI Act) | Must be considered when acquiring, selling and dealing in the downstream gas and electricity sector |
| NSI Assessment outcomes | Final Notification clearing the acquisition to proceed; Final Order allowing the acquisition to proceed with certain conditions; Final Order blocking the acquisition |
| Supplier Volume Allocation (SVA) Qualification | Required to ensure that Suppliers understand the obligations and activities of the BSC and maintain a certain performance level |
| Central Volume Allocation (CVA) Qualification | Required to prove that Suppliers have the ability to send certain communications to BSC Agents and ensure that certain communications are received |
| Elexon Kinnect Customer Solution | Self-service gateway that offers a guided and streamlined market entry process |
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What You'll Learn
Energy suppliers must obtain a licence from Ofgem
To obtain a licence, you must send a signed application, along with all the necessary information, documentation, and payment of the relevant fee. Before submitting the application, you must read the licence application guidance document, which outlines the criteria used to grant a licence. There is also an alternative route to obtaining an electricity supply licence called Licence Lite.
If you are acquiring an entity that performs activities in the energy sector, you may be legally required to submit a mandatory notification to the Investment Security Unit (ISU), which administers the National Security and Investment Act 2021 (NSI Act). The NSI Act gives the government the power to call in acquisitions that may pose a national security risk. If your acquisition is called in for assessment under the NSI Act, Ofgem will stop the clock on the processing time for your licence application until you inform them of the outcome. The NSI assessment can result in a Final Notification clearing the acquisition, a Final Order allowing the acquisition with conditions, or a Final Order blocking the acquisition.
It is important to note that there are certain exceptions and exemptions to the requirement to hold a licence. Schedule 2A of The Gas Act 1986 sets out these exceptions, and it is the applicant's responsibility to ascertain whether their proposed activity falls within an exception. Ofgem cannot advise on whether a specific activity is exempt or excepted from the requirement to hold a licence.
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Energy suppliers need to understand the BSC and complete MHHS Qualification
Energy suppliers in the UK need to be licensed by Ofgem to supply electricity to domestic and non-domestic premises. To obtain this licence, energy suppliers must understand the Balancing and Settlement Code (BSC) and complete the Market-wide Half Hourly Settlement (MHHS) Qualification.
The BSC outlines the various obligations and activities that suppliers must adhere to. For example, suppliers are responsible for the meters that record energy consumption and must also ensure the performance of their supplier agents, including data collectors, data aggregators, and meter operators.
The MHHS Qualification is a crucial requirement for new entrants to the energy industry in Great Britain. It ensures that suppliers comprehend the BSC obligations and can maintain a certain level of performance. The qualification process involves providing evidence and documentation to the BSC and Retail Energy Code (REC) Code Bodies, demonstrating that suppliers have the necessary systems, processes, and controls in place to meet the MHHS Design requirements.
To facilitate this process, the REC Code Manager and Elexon have produced documents detailing their respective assessment criteria for the MHHS Qualification. These documents are available on the REC Portal and the Elexon website. Additionally, the MHHS Programme website offers resources such as the Qualification Assessment Document (QAD) and webinars to guide suppliers through the qualification process.
It is important to note that there are associated costs with becoming an electricity supplier and obtaining the necessary qualifications. For instance, the BSC charges a £500 accession fee and a subsequent flat monthly fee of £250 + VAT.
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Suppliers must pay various charges and fees
To become an electricity supplier in the UK, you must obtain a licence from Ofgem. Ofgem is the government body responsible for regulating the electricity and gas markets in the UK. The process of obtaining a licence involves several steps, including registering your intent, completing the necessary documentation, and paying various charges and fees.
One of the critical charges that suppliers must pay is the Supplier Volume Allocation (SVA) qualification fee. The SVA qualification is required for new entrants to the energy industry to ensure they understand their obligations and maintain a certain level of performance. The cost of this qualification is £500, covering the administrative costs of entering the market. Additionally, there is a monthly base charge of £250 + VAT, known as the base monthly charge.
Furthermore, suppliers are responsible for purchasing electricity from generators or other parties in the market to meet their customers' demands. Trading charges may apply if there is an imbalance in the energy supplied and demanded. These charges are typically made 29 days after a settlement day.
In addition to the SVA qualification fee and trading charges, suppliers must also budget for the costs of meters and their maintenance. Suppliers are responsible for providing and maintaining meters that record their customers' energy consumption. This includes the cost of data collectors, data aggregators, and meter operators, who ensure the accurate measurement and recording of energy usage.
It is important to note that the financial requirements for becoming an electricity supplier in the UK extend beyond the charges and fees mentioned above. There may be additional costs associated with obtaining the necessary licences, complying with industry regulations, and maintaining operational efficiency. Prospective suppliers should carefully review the financial implications and seek expert advice to ensure a comprehensive understanding of the economic framework within the UK's electricity supply industry.
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Suppliers must install smart meters in homes and small businesses
Smart meters are the new generation of gas and electricity meters being rolled out across Great Britain. They are replacing traditional meters in homes and small businesses, helping users to better manage their energy usage and spend. As of the end of 2023, 34.8 million smart meters had been installed in British homes and small businesses, accounting for 61% of all meters.
The UK government is committed to ensuring that households and small businesses can benefit from smart meters as soon as possible. To that end, they introduced a 4-year Targets Framework on 1 January 2022. Under this framework, energy suppliers are set individual annual smart meter installation targets, with the aim of achieving 100% coverage.
Energy suppliers are responsible for the meters that record their customers' energy consumption. Suppliers must also ensure that they meet certain qualifications and requirements before they can be licensed to supply electricity. To become a licensed electricity supplier in the UK, you must register your intent by completing an expression of interest form. After submitting the form, you will be required to attend a meeting to discuss the process and necessary requirements.
To meet the requirements, suppliers must pay an accession fee of £500, which covers the administrative costs of entering the market. Additionally, a flat monthly fee of £250 + VAT is charged as a base monthly charge. Suppliers must also obtain the Supplier Volume Allocation (SVA) Qualification to ensure they understand their obligations and maintain a certain performance level.
It is important to note that the installation of smart meters by energy suppliers comes at no additional cost to the consumer. The costs are spread across everyone's energy bills, similar to the cost structure for traditional meters.
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Energy suppliers must source electricity from renewable sources
To become an electricity supplier in the UK, you must obtain a licence from Ofgem, the government body responsible for regulating the electricity and gas markets. The process involves various steps, including registering your intent, completing the necessary forms and documentation, and paying the relevant fees.
Energy suppliers in the UK must source electricity from renewable sources to meet the country's sustainability goals and address the climate crisis. Ecotricity, Britain's largest green supplier, provides 100% green electricity generated from the sun and wind. They generate 20% of their electricity themselves, while the remaining is purchased from other green generators or the wholesale market. Similarly, Good Energy, a B Corp-certified company, matches its customers' electricity usage with 100% renewable electricity sourced from a community of over 2,500 independent renewable generators.
Octopus Energy has also taken the lead in the race for renewables, offering 100% renewable electricity on all its smart tariffs. Some of the larger, more traditional energy suppliers have also started offering renewable power due to the increased attention on climate change. As a result, energy suppliers must increasingly focus on sourcing electricity from renewable options to remain competitive and contribute to the UK's transition to a greener energy landscape.
To ensure a consistent supply of renewable electricity, suppliers can invest in various sources, such as solar panels, wind farms, and green gas. By diversifying their energy portfolio, suppliers can not only meet customer demands but also contribute to the fight against climate change. Additionally, suppliers can encourage customers to adopt renewable energy solutions, such as installing solar panels or utilising smart meters, to improve energy efficiency and reduce carbon emissions.
To summarise, energy suppliers in the UK must embrace renewable sources to obtain a licence and meet the country's sustainability goals. By investing in green energy infrastructure and encouraging customers to adopt renewable solutions, suppliers can play a pivotal role in the transition to a low-carbon future.
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Frequently asked questions
To become an electricity supplier in the UK, you need to obtain a licence from the Office of Gas and Electricity Markets (Ofgem). The cost of a licence ranges from £350 to £1,050, depending on the activities covered. You will need to register your intent by completing an expression of interest form, after which Ofgem will arrange a meeting to discuss the process and requirements.
The Central Volume Allocation (CVA) Qualification is required to ensure that suppliers can communicate with BSC Agents. Additionally, the Supplier Volume Allocation (SVA) Qualification is necessary for suppliers to understand their obligations, maintain performance levels, and comply with industry codes.
Schedule 2A of The Gas Act 1986 outlines specific exceptions where a licence may not be needed. However, it is the responsibility of the applicant to determine if their proposed activity falls within these exceptions. It is recommended to consult legal counsel and refer to relevant legislation, such as the Electricity Act 1989, for detailed information on exemptions.
