Electricity Generation: Local Suppliers

Part of the debate – in the House of Commons at 7:15 pm on 14th October 2020.

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Photo of Ben Lake Ben Lake Shadow PC Spokesperson (Treasury), Shadow PC Spokesperson (Environment, Food and Rural Affairs), Shadow PC Spokesperson (Education), Shadow PC Spokesperson (Digital, Culture, Media & Sport), Shadow PC Spokesperson (Health and Social Care), Shadow PC Spokesperson (Housing, Communities & Local Government), Shadow PC Spokesperson (The Constitution and Welsh Affairs) 7:15 pm, 14th October 2020

The hon. Lady’s point is an important one: we need to make sure that community schemes are supported. It also anticipates where I want to take my speech next, so I am doubly grateful.

The potential capacity of local community-owned energy is quite astounding. A 2014 UK Government report stated that community energy projects could contribute as much as 3,000 MW of electricity generation capacity by 2020. Unfortunately, we have not quite met that target, but the potential is striking nevertheless.

That potential is frustrated by the antiquated rules that govern our energy markets, which were designed primarily in the 1990s and were suited to a different system of large power stations and a handful of utility companies. Unfortunately, those rules still rule the roost, and they create insurmountable cost barriers to any community energy initiative that wishes to sell the electricity it generates directly to local households and businesses.

A report by the Institute for Public Policy Research shows that the technical and operational challenges involved in becoming licensed to supply energy to customers lead to initial costs exceeding £1 million. There have been attempts to address that. A few years ago, Ofgem launched Licence Lite, which was aimed at creating a less onerous set of supply licence conditions for specific types of new, innovative supply business models. Unfortunately, that has proved complex and has not been well used to date. To its credit, Ofgem has also launched an expanded Sandbox service to allow innovative companies to apply for derogations from the traditional licensing regime and stipulations, and it has extended its ability to grant those derogations to certain local generators.

However, the most effective solution would be to introduce greater proportionality to the licensing system, to ensure that the costs and complexities of being a licensed electricity generator are proportionate to the scale of its supply. If the costs are proportionate, it becomes financially viable for smaller-scale renewable generators to supply electricity, and, in turn, new community-owned schemes would become viable.