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UTILITY WEEK | 13Th - 19Th JUnE 2014 | 19 Policy & Regulation Analysis T he Boris bikes are the most visible clue that the mayor of London is looking to reduce the capital's carbon footprint, while the congestion zone is probably one of the more irritating, and costly, ones for Lon- don's motorists. But behind the scenes, there is another plan underway that the Greater London Authority (GLA) hopes will substantially cut its emissions. In 2009, Ofgem established rules for a "junior" supply licence to make it easier for small energy companies, including decen- tralised energy schemes, to operate as a licensed supplier on the public network. So far, the only player in the Licence Lite game is the GLA, which is working through the process and aims to be a fully function- ing energy supplier by April next year. But, as Matthew Pencharz, the GLA's energy and environment adviser, tells Utility Week, this desire to become the UK's newest energy supplier, and the flag bearer for the Licence Lite scheme, does not stem from the need to generate electricity. It comes from the mayor's desire to reduce London's car- bon emissions by 60 per cent by 2025, and his belief that the way to achieve this "has to be heat-led projects". London already has a few heat networks within areas such as Islington and Camden, but Pencharz admits they are "not huge in number". The key to the success of the Licence Lite in London will come down to whether the GLA can make heat economical. It plans to do this by purchasing the elec- tricity generated – mostly by gas turbines at the start of the process – at a higher price than small generators are currently being offered by the major energy companies. "At the moment you go to the big six, and they are not particularly well designed, or motivated, to deal with relatively small packets of a few megawatts of juice," says Pencharz. By applying for the junior energy supply licence, the GLA aims to purchase these "small packets" of energy and sup- ply them to "effectively a bottomless pit of demand" – the London Underground. The crucial part of the plan is ensur- ing that Transport for London (TfL) and the decentralised generators both benefit from the arrangement. "TfL is not going to do this out of the goodness of its heart; why should tax and fare payers pay for this?" he says. The GLA's business case predicts the generators – which for the first stages of the Licence Lite project will be other public bod- ies, to ensure simplicity – could receive 20 to 30 per cent more for their electricity than they were previously being offered, while TfL will also receive "marginally better rates". This jump in the price for their electric- ity then makes the whole combined heat and power (CHP) enterprise more economi- cal – opening up greater sources of heat to be plugged into London's growing heat net- works. With CHP becoming a more invest- able development, it is hoped that a number of London's publicly owned mothballed CHP units will be enticed back online. It is also hoped the Licence Lite would "unlock" up to £300 million worth of invest- ment for 22 new CHP projects, while in the longer term generate more than £8 billion of investment over the next 11 years. As mayor Boris Johnson said: "Nurturing a new crop of small, low-carbon energy pro- ducers across the capital is the key to a more secure, cost-effective and sustainable energy supply for us all." Peter North, the GLA's senior manager of programme delivery for sustainable energy, hopes that London's Licence Lite, once it becomes established, will help to increase market access and liquidity in the electricity market for the smaller players. Ofgem initially proposed the idea of the junior supply licence in a white paper in 2007, but it took two years before the regu- lations were adapted to allow it to go ahead, and a further four before the GLA became the first organisation to formally apply. This responsibility and path-finding role has meant that progress has been slower than all concerned had initially hoped. "We're not going to pretend it's on rock- ets," says Pencharz. "Because we're the first we need to be careful to get all the ducks in a row." The April deadline, and a strong desire from both the Department of Energy and Cli- mate Change (Decc) and Ofgem for the GLA to succeed, are added pressures on the GLA, but Pencharz insists "London has led the way in lots of things", and becoming a junior energy supplier is just more of the same. He says Decc and Ofgem have been regu- larly meeting with the GLA throughout the process and have been doing all they can to help it progress. Regarding the future, the GLA has con- ducted a couple of studies looking beyond 2025, and the aim is to continue to grow and expand the distributed CHP generation to provide cheap electricity and domestic heat. The studies even show that it would be theoretically possible for London to become self-sufficient, although there are significant cost barriers to that becoming a reality. However, North says these studies help the GLA "understand where we need to be going and where we need to be more effec- tive to take advantage of that potential". Unlocking that potential is at the heart of the mayor's 2025 decarbonisation policy, and getting the Licence Lite regime established is central to that. Let there be Lite Unlocking the potential of the 'Licence Lite' junior energy supply licence regime and getting it established in London is at the heart of the mayor's 2025 decarbonisation policy, says Mathew Beech. Heat (12.2MtCO2) Projected electricity deMand in london by 2031 Electricity (21.6MtCO2) Residential Non-residential 0 5 10 15 14.1 4.3 7.9 7.5 20 25 Carbon emissions (MtCO 2) Source: LEGGI, 2008