UK Energy Insights: New Guidance Awaited and Code Changes for Exempt Energy Supplies

DESNZ to update Class A guidance

On 21 November 2025, Ofgem published its decision in relation to a proposed modification to the Balancing and Settlement Code (“BSC”) for exempt electricity supplies. In its decision document, Ofgem noted that there have been recent queries from stakeholders about different Class A undertakings, and has indicated that the Department for Energy Supply and Net Zero (“DESNZ”) will shortly be publishing general guidance on Class A. The indication that DESNZ is looking at producing updated guidance on licence exemptions is encouraging, and we will be looking out for such guidance to be published in due course.

Approval of BSC modification P498

In publishing its decision, Ofgem confirmed that it had approved a proposed modification to the BSC relating to data reporting of exempt electricity supplies. Modification P498: “Ensuring Correct Data Flows for Licence Exempt Supplies” was proposed by Energis Electricity Developments Limited in response to an announcement by Elexon in July 2025 that, further to approval of a code modification to allow correct reporting of exempt and non-exempt supplies (BSC code modification P442, see below):

• Elexon would end the interim Supplier Volume Allocation (“SVA”) process that rectifies an overcharge of Capacity Market (“CM”) or Contracts for Difference (“CfD”) charges to suppliers providing services to facilitate existing licence exempt supplies from 1 January 2026
• Elexon would immediately bring to an end the interim SVA process that rectifies the overcharge of such CM or CfD charges that would be made to those suppliers who wish to provide such facilitation services

This decision by Elexon was considered not to be consistent with discussions of the workgroup panel considering modification P442, which identified the need for an overlap between the outgoing interim process and the incoming P442 mechanism. As a result, Energis raised modification P498, which was granted urgent status on 27 August 2025.

The changes detailed in the modification will take effect 10 working days from the date on which Elexon releases an updated version of the BSC to industry.

The background: modification P442

Modification P442: “Reporting to EMRS (EMR Settlement Ltd) of chargeable volumes for SVA Metering Systems that record both exempt and licensed supply” amends the BSC to provide for the exclusion of licence-exempt volumes of supplied electricity from the calculation of fees levied on licensed suppliers to fund the UK Government’s Electricity Market Reform (“EMR”) programme.  The EMR regulations apply to licensed supply volumes only, resulting in a misalignment between the application of the EMR regulations and the BSC, the risk being that fees used to fund the CM and CfD were being levied against licence-exempt supplies. 

Modification 442 introduces a new Party Agent role – the Exempt Supply Notification Agent (“ESNA”) whose role is to calculate the volumes of licensed and exempt supply, and to submit this data to the BSC central systems. This will more easily identify the exempt supply that is not subject to the EMR-related levies.

Energis’ modification proposal

The proposal put forward by Energis was two-fold:

• to allow a “Qualified” ESNA (i.e., an ESNA that has submitted its application for qualification and has demonstrated to Elexon’s Performance Assurance Board that it can meet the BSC requirements) to submit data for settlement dates prior to its Qualification becoming effective – thus providing a greater choice of ESNA to licensed suppliers that are providing licensed services to licence-exempt suppliers
• to remove the deadline for licensed suppliers using the interim process for licence-exempt supply notifications to migrate to ESNA arrangements, allowing the interim arrangements to continue indefinitely where already in place or until the relevant contracts expire

This second point was modified during the process, with an alternative proposal being to retain the interim process, but for a time-limited period, rather than indefinitely.

Ofgem agreed that the proposal put forward by Energis would better facilitate the achievement of Ofgem’s objectives under the BSC, with its final approval being given to the alternative proposal in relation to the interim arrangements. This demonstrates Ofgem’s clear intention for there to be a transition period where the interim process and the enduring regime implemented as a result of modification 442 would work alongside each other – a transition period that had been substantially removed by Elexon’s announcement. The support for the alternative proposal gives a clear message to suppliers, however, that the interim process is just that – interim – and the enduring regime is intended to eventually be the sole applicable process.