Licence Exempt Supply: Your Webinar Questions Answered

Our joint webinar with Enosi on 29 September explored how Licence Exempt Supply (LES) works in practice, from the regulatory framework and settlement arrangements to the opportunities for generators, suppliers and energy consumers. The panel featured Steve Hoy (CEO, Enosi), James Hall (COO, Evolve Energy), John Lucas (Head of Market Design, Elexon), and Tom Andrews (Senior Consultant) and Robert Buckley (Head of Strategic Accounts) of Cornwall Insight. The recording is available to watch on demand here. If you have not already registered, simply complete the short form to register and log in.

The webinar generated many questions from across the market, some of which were extremely complex and detailed. During the session, we were able to address many of these directly, while others required further consideration following the event.

This document brings together those outstanding questions and our subsequent responses. To make the material easier to navigate, we have grouped related questions into common themes and edited them for brevity while retaining their original meaning. The responses are provided against those themes rather than against individual questions.

The answers reflect the public nature of both the webinar and this response. They focus on areas where we are comfortable providing written commentary and where there is sufficient common understanding to give a broadly applicable response.

As the discussion demonstrated, LES remains a developing area of the market. Participants are exploring different commercial models and approaches, and there will inevitably be differences of opinion in areas involving interpretation of long-established legislation and self-assessment. This was particularly apparent in discussions around which generation capacity may be able to contract on an LES basis and the costs and cashflows that may be applicable within particular arrangements.

The questions also highlighted a shift in where interest is coming from. Much of the momentum now appears to be coming from generators and asset owners as they see examples of additional value being realised elsewhere in the market. From the supply side, there remains a focus on how much of the market can realistically be served through LES arrangements and where natural limits may emerge. We believe that there are practical constraints which are likely to limit overall LES volumes and we are pushing close to them.

We hope the questions and answers below provide a useful contribution to the discussion and help participants better understand both the opportunities and practical considerations associated with LES.

The conversation will continue through a forthcoming Cornwall Insight podcast with James Hall of Evolve Energy, examining the commercial and wider business implications of LES from a consumer perspective. We will also revisit these issues at CI Live on 4 November at Glaziers Hall in London, where Cornwall Insight will be leading a debate with industry participants on how the market is developing and the challenges and opportunities ahead. Reserve your tickets for CI Live 2026 here.

If you would like to talk about how Cornwall Insight could support you in understanding Licence Exempt Supply and what it could mean for your business, please reach out to Robert Buckley (Head of Strategic Accounts) at r.buckley@cornwall-insight.com

Questions and Answers by Theme

Theme	Questions (as asked)	Core Answer Theme
1. Understanding P442 and what it enables	Does that 1% [of total market volumes] include 3rd party behind the meter supply? Do matched MPANs need to be in the same BMU?	The 2.2TWh figure cited in the webinar represents total reported Licence Exempt Supply volumes and equates to less than 1% of total GB electricity demand. Behind-the-meter supply is not by definition provided from the public system so is excluded. The MPANs do not have to be in the same BMU. The P442 process is designed around time-matching exempt generation and consumption at MPAN level before those volumes are aggregated for settlement purposes.
2. Which assets and customers can participate?	As a generator, if you hold a generation license, can you also participate in being a license exempt supplier? As a generator can I keep my current supplier and still use an ESNA to avail of ourselves of P442? For a generator which has assets which have an aggregate capacity >5MW, can 5MW of that be used for levy exemption? Or are only sub-5MW generators eligible for the scheme? How are you answering ROC generators seeking to be part of a P442 scheme? Which generation schemes are eligible? e.g. FiT/SEG/RO/CfD? Surely LES is not the best way of demonstrating origination? Geographically it sounds like LES are not all on the same site, potentially could be covering large areas – so are DUOS and TNUOS still charged on these supplies? The 5MW limit applies to the first 5MW so it doesn’t necessarily just apply to small scale generators? Is there a limit to the total installed capacity to meet the LES criteria? Between the 5MW cap applied at body corporate level and existing private wire arrangements which eat into LES allowances, there is an increasing scarcity of generators which can participate in LES. Do you see such market dynamics, too? Have you seen anything that would prevent generation assets participating in the Capacity Market from being eligible for Levy Exempt Supply (LES)? Also, are generators operating under a CfD eligible for LES?	The ESNA-enabled framework has evolved from different, independent mechanisms. Its overall intention is to support participation from a broad range of small-scale generation assets that could contract with a supplier for supply matched to customer loads under the licence exemption regime. The framework can be accessed by generators that believe they could provide power that might fulfil Class A and Class C exemptions. Generation limits are applied through the ESNA settlement process. Eligibility is self-declared and guidance has been set out by DESNZ and is available at: Electricity licence exemptions – GOV.UK We believe LES has a natural ceiling not far above current levels given the eligibility criteria.
3. Interaction with existing support schemes and licences	Have you seen anything that would prevent generation assets participating in the Capacity Market from being eligible for Levy Exempt Supply (LES)? Also, are generators operating under a CfD eligible for LES? The Exemptions Order guidance has this past month been updated. Do you have a view as to how clear this guidance now is in permitting the use of the one supply Class exemption in combination with any other Class exemption? P442 is written around <5MW license exemption Class A but can it be applied to Class C onsite exemptions under the current P442 wording? Do you have a view on the ability to avoid CCL through this mechanism? Can the generator doing the Licence Exempt supply hold a generation licence, or does it have to be a <50MW generator? There has been discussion around whether a ROC-accredited generator can sell power using Class A / P442, while still claiming ROCs for the same electricity. We are aware of schemes operating that are avoiding ALL non-commodity costs on the basis of geography. Noticed you didn’t mention CCL and VAT reduction from LES, is that cost component also able to be avoided through matching volumes? Do you know if you can apply P442 and P441 to the same sites if within a substation?	The guidance has recently been updated to provide in our opinion a clearer view of how licence-exempt supply can operate alongside licensed supplies. We recommend that specific advice is taken for individual generation projects based on their specific circumstances. We believe that buyers of such output should verify with their licensed electricity supplier that the LES volumes they are purchasing are produced consistently with the relevant Supply Licence Exemptions.
4. Commercial benefits and value creation	Licence Exempt I believe is exemption from a Supply Licence for any generation/feed in to the grid. Is Renewable generation also not exempt from some levies? Could you please expand on these differences/overlaps? Are there data available for the reduction in price at delivery to the customer? How does avoiding Net Zero supporting levies fit with ESG principles?	Policy costs are levied on licensed electricity supply not generation. Data on the non-applicable costs to LES was presented in the webinar. Users of LES on both production and generation sides of the market will have their own reasons for contracting in this way.
5. Future regulatory and policy risk	Are there plans to limit LES, as the costs fall on the remaining users? Do you think there will be a time where DESNZ will commit to grandfathering LES arrangements for the operational life of new generation? That certainty is critical for financing new community energy projects.	The biggest uncertainties facing LES are future policy intervention and whether sufficient certainty is able to be provided for developers/investors so that current LES cashflows may become regarded as “bankable”.
6. Cost shifting and consumer fairness	Can you quantify what proportion of LES makes up of wider market? What is the impact on those customers who can’t avoid some of the non-energy costs? Is it a case of everyone else pays more to pick up the difference? Does the market for this disappear if the government decided to move some/all of these policy costs into general taxation? Do you have a view on the aggregate financial value of lost contributions to the levies avoided and thus mutualised to remaining customers?	The key policy debate is whether LES supports innovation and investment in small-scale generation or simply redistributes costs across consumers. The LES market has been designed to be small by volume and small by project by referencing the licence exemptions. Presently LES volumes account for less than 1% of total GB electricity demand. Notional additional costs arise because of industry charges that are not paid being shared out amongst other participants. If the charges as a whole transit into taxation from energy bills, there is difference as to whether the supply is being made on a LES basis or not. Total aggregate cash flows per year attaching to policy schemes amount to around £18bn, covering Renewables Obligation (£8.3bn), Capacity Market (£3.5bn), Contract for Difference (£2.5bn), Nuclear RAB (£1.1bn), and Feed-in-Tariff (£2.4bn)
7. Community energy and system outcomes	Can we make P442 enduring for community energy owned renewable assets, to support the financial modelling and future viability and growth in this area? P442 can be very beneficial to community energy projects, but the ‘watching brief’ position and changes to levy cost recovery means that community energy developers are wary about building financial business cases around exempt supply. Is P442 here to stay, and how can we make it a secure revenue stream for community energy projects? If licence-exempt supply grows significantly, do you think there is a case for linking the available benefits more closely to network outcomes, for example by introducing some form of locational or network-based requirement? Licence-exempt supply is often discussed in terms of regulatory compliance and consumer protection, but what is its impact on the electricity network itself? Can it be used to enable local balancing? What affect do you foresee on participation in the market with the anticipated changes to P441? Not P441, we want to know if P442 can enable local balancing.	New community energy projects have not received direct subsidy since the closure of the Feed-in Tariff scheme in 2019. The many-to-many matching capability introduced under P442 has the potential to support community energy initiatives and more localised energy arrangements. By facilitating half-hourly matching of generation and consumption through a recognised settlement framework, the mechanism could help community and local energy projects capture value from exempt supply arrangements while increasing participation in innovative energy markets. Separate initiatives are in place to encourage local balancing and DSO activities.
8. Governance, monitoring and compliance	How is this data relating to volumes captured please? Noting the 2.2TWh figure for LES as it stands, is there a view on at what volume level there maybe be intervention from DESNZ/Ofgem? Who is monitoring the process, especially ensuring that the 5MW limit is not breached? Is the industry confident that the exempt supply limits are being adhered to? At what scale will the regulator intervene? Is there a concern some corporates are exploiting the 5MW benefit? Are generators changing legal structure of sites to qualify for 5MW cap? Has there been any misuse of P442 where Elexon/Ofgem have had to step in? Are the volumes of Exempt Supply being reported to Elexon available publicly? Are there plans for sharing the levies being avoided or is that what DESNZ are potentially planning intervention for?	LES data presented in the webinar was sourced from Elexon reporting, demonstrating that aggregate market information is publicly available. Under the P442 framework, ESNAs receive metering data, apply exemption limits, calculate matched exempt volumes and submit settlement reports to Elexon. Those volumes are subsequently processed through the normal settlement reconciliation cycle. Data flows are managed by ESNAs and the data they collate is used by Elexon. Elexon, Ofgem and DESNZ are tasked with ensuring data integrity and compliance with the licence exemption regime.