The principle
Supplying electricity in Great Britain normally requires a licence from Ofgem. Obtaining and maintaining one is a serious undertaking, which is why there are class exemptions allowing supply below defined thresholds without a licence.
The exemptions exist so that a landlord supplying tenants, a business supplying a neighbour, or a community scheme supplying local homes does not need the same regulatory apparatus as a national supplier. They are self-assessed against statutory criteria, not granted case by case, which cuts both ways: nobody hands you a certificate confirming you qualify, and nobody stops you if you have got it wrong.
Where it works well
Licence exempt supply suits arrangements where generation and consumption are physically close and commercially connected. Solar on a warehouse roof supplying the occupier. A generator on adjacent land supplying a single industrial site over a private wire. A small scheme supplying a defined group of local customers.
What you gain is the ability to sell power directly at a price that beats grid supply, without the cost base of a licensed supplier. What the customer gains is a rate below what a supplier would charge, because the power avoids the network and much of the policy cost.
Where people get it wrong
Three recurring mistakes.
Assuming the exemption covers everything. It covers the supply. It does not remove the need for metering, settlement arrangements, or a licensed supplier to provide top-up when your generation falls short, which it will.
Underestimating the settlement side. Where a meter records both exempt and licensed volumes, that has to be reported correctly, which is exactly what P442 and the Exempt Supply Notification Agent role exist to handle. Get this wrong and the levy costs eat the saving.
Treating it as a way to avoid being a supplier while behaving like one. Exemptions have thresholds. Growth through them is a licensing conversation, and it is better had early.
Exempt supply against a sleeved PPA
These get conflated. Licence exempt supply is you selling power directly, within an exemption. A sleeved PPA is a licensed supplier standing in the middle, buying from a generator and delivering to you. Exempt supply usually gives the better unit economics where it is available. Sleeving works anywhere on the network and carries none of the compliance burden.
Most sites that can do exempt supply should look at it. Most sites cannot, because the generation is not next door.