Licence-exempt supply & P442 — the competitive landscape has shifted.

Eighteen months ago, licence-exempt supply was a niche capability. A handful of suppliers, the early movers, had started exploring it as a way to sharpen their proposition in the large C&I B2B market. Today, the picture looks very different.

Adoption is accelerating month on month, and what was once a competitive differentiator is fast becoming a competitive necessity. If you're a supplier operating in the large C&I space and you're not yet offering licence-exempt supply, there may be good reasons for that — but the window to act on your own terms, rather than in response to lost business, is narrowing.

What is licence-exempt supply?

There are several classes of licence-exempt supply, but the one driving the current wave of adoption is Class A. Unlike Classes B and C, which apply to private networks and individual premises, Class A allows exempt supply to happen across the public distribution and transmission networks. That is what makes it relevant to the large C&I market.

The mechanism works by matching qualifying generators and qualifying supply customers on a half-hourly basis. For any half-hour period where exported generation and customer demand align, both parties can become exempt from a range of industry and renewable levies, including the Renewables Obligation, Feed-in Tariff, Contracts for Difference, and Capacity Market.

The potential benefit across all of these exemptions is significant — around £60/MWh. In practice, the realised saving depends on how effectively generation and demand are matched across a contract's full volume. Matching capability isn't just a technical consideration; it is the single biggest determinant of how much value this mechanism delivers.

Enter P442.

P442 is a Balancing and Settlement Code modification approved by Ofgem that introduces a new qualified BSC party agent role: the Exempt Supply Notification Agent (ESNA). It was implemented in February 2025.

What the ESNA does is communicate exempt volumes directly to Elexon as settlement data. The scope of P442 is specifically focused on EMR-related charges, meaning Contracts for Difference and Capacity Market levies. The exempt volumes reported by the ESNA are excluded from the calculations used to assign these levies to licensed suppliers, with the discount applied at source through the settlement process itself. No separate data exchanges. No manual reconciliation.

This matters because it formalises and streamlines how CfD and CM exemptions are handled versus other exempt levies. P442 isn't just a regulatory update. It's an enabler that has professionalised the data-handling requirements and is helping to accelerate adoption across the market.

A significant and growing minority of the large C&I market is now being served through licence-exempt supply arrangements. Suppliers who aren't offering it are finding themselves undercut on price — not by a marginal amount, but by enough to lose customers and PPA opportunities. — Where the market is now

The competitive landscape has changed.

When the early adopters moved into this space, many suppliers watched from the sidelines. Some had legitimate reservations about the mechanism and whether widespread adoption was really consistent with the scheme's original intent. Others simply didn't see the urgency.

That calculus has changed. In a market where retaining your base matters as much as growing it, falling behind on licence-exempt supply is a risk most can't afford to carry.

What I'm seeing now is a second wave of adoption. Suppliers who initially held back are entering the market, driven not by enthusiasm for the mechanism but by the commercial reality that standing still is no longer an option.

Not all approaches are equal.

One thing I've observed working with suppliers in this space is that there is no single way to implement licence-exempt supply. The market has evolved several distinct approaches, each with different operational, commercial and risk implications.

Some have implemented on a one-to-one basis, matching individual customers to individual generators. Others have taken a pooled approach, aggregating all customers and generators without tying arrangements to a single contract on either side. Some are layering it on top of existing supply agreements and passing savings back as a rebate against already-agreed rates. Others still are negotiating bespoke pricing upfront that strips out the levies entirely, delivering a lower headline price from day one.

Each of these models carries different implications for systems integration, commercial risk and customer experience. The right approach depends on the supplier's existing capabilities, their customer base, and how they want to position the proposition commercially.

Build, buy, or something in between.

The implementation question extends beyond the commercial model and into technology. Suppliers face a genuine build-versus-buy decision — and increasingly, a spectrum of options in between.

The third-party provider landscape has matured considerably. Some SaaS platforms offer matching capability only, leaving billing and commercial processes with the supplier. Others provide additional services that go beyond matching.

The decision isn't purely about capability. It is about risk appetite, speed to market, and exit flexibility. Building in-house means carrying more risk through the development phase and committing CapEx that becomes harder to unwind if circumstances change. Outsourcing keeps costs in OpEx and offers more flexibility, but introduces dependencies. Understanding where the boundaries of your existing technology stack sit is essential to making an informed choice.

Not just large C&I.

It's worth keeping in mind that while the current wave of adoption is concentrated in the largest C&I segment, licence-exempt supply is not limited to it. The same mechanism is equally applicable to mid-market business customers, SMEs, and even the domestic market. The qualifying thresholds are lower for domestic, but the principle holds.

The challenge for domestic, though, is a practical one. Licence-exempt supply is technical by nature, and delivering it in a way that is simple enough for a domestic customer to understand and engage with is a genuinely hard product problem. The commercial model, the customer journey, the communications around it — all need to work differently at that end of the market. I have yet to see anyone do this, but it's a space to watch. Whoever solves that product challenge could open up a much larger addressable market.

The bigger question.

There's an important conversation the industry needs to have, and it goes beyond the immediate commercial opportunity.

Licence-exempt supply works because qualifying parties are exempted from contributing to renewable levies and industry schemes. But those costs don't disappear. As more customers are served through exempt arrangements, the cost burden is redistributed across those who remain in the conventional supply pool.

To put some numbers around this: OVO's evidence to Parliament estimated that levy avoidance through licence-exempt supply grew from around £25m in 2022–23 to roughly £100m in 2023–24. Cornwall Insight's scenario analysis suggests this could reach anywhere between £680m and £3.6bn by 2030. At some point, the industry needs to ask: where is the tipping point?

This isn't just an industry concern. DESNZ's own guidance on licence exemptions acknowledges that a significant increase in the usage of Class A could further impact consumer bills, as avoided policy costs are spread across the market. They have said they will monitor this going forward. But this mechanism is written into legislation, which means any changes to its scope or application would need to navigate a regulatory and legislative process. That takes time — potentially more time than the market is taking to adopt the scheme at scale.

How I can help.

The licence-exempt supply landscape is complex, fast-moving and consequential. The decisions suppliers make now about whether and how to enter this space will shape their competitive position for years to come.

Through EnergyLab, I help suppliers navigate this landscape: from understanding the competitive dynamics and regulatory detail, to shaping the commercial proposition and product development approach, evaluating build-versus-buy decisions, and assessing the risk profile of different routes to market. I work with organisations to make informed, strategic choices in a market that doesn't reward hesitation.