Settlement reconciles differences between a supplier’s contractual purchases of electricity and the demand of its customers. Generators and suppliers trade electricity in the wholesale market in half-hourly periods. Currently, most customers are settled on a ‘non-half-hourly’ basis using estimates of when they use electricity, based on a profile of the average consumer usage and their own meter reads (taken over weeks and months).
Smart meters can record the amount of energy consumed or exported within every half hour of the day. This provides an opportunity to make the settlement process more accurate and timely, and act as an enabler for new products and services, for example supporting use of electric vehicles or making use of smart appliances. These can deliver positive outcomes for consumers through lower bills, reduced environmental impacts, enhanced security of supply and a better quality of service.
Market-wide settlement reform is a key enabler of the move to a smarter, more flexible energy system and has a fundamental role in delivering the smart systems and flexibility plan. A smart, flexible energy system could bring £17-40 billion (bn) worth of benefits by 2050. Our analysis predicts that half-hourly settlement would bring net benefits for consumers in GB of between £1.6bn and £4.6bn by 2045.
Suppliers can already choose to settle consumers half-hourly through our elective half-hourly settlement work. We expect, however, that we will have to require that all suppliers do this in order to maximise consumer benefits.
Our scope and approach
In July 2017, we launched our Significant Code Review (SCR). Our final decision on market-wide half-hourly settlement had been intended for publication in autumn 2020 but we are reviewing the project’s timescales in light of the ongoing public health situation. The project involves work streams to develop the Target Operating Model and the Business Case, and to resolve key policy questions relating to market-wide half-hourly settlement. Since launching our SCR we have published a series of documents about this work, including:
- Outline Business Case
- Preferred TOM and Transition Approach
- Policy decision on access to data
- Policy decision on agent functions
- Draft Impact Assessment
- Consumer Impacts paper
- Open letter on access to data
- Detailed design areas table
More information is available below.
Target Operating Model
One of the key outputs of this SCR is the development of a Target Operating Model (TOM) to deliver market-wide half-hourly settlement. To achieve this, we have set up the following design bodies:
- a Design Working Group, chaired by ELEXON, which designed the preferred TOM and transition approach. The Design Working Group concluded its work when the final report was delivered to Ofgem in August 2019.
- a Code Change and Development Group, chaired by ELEXON, which is developing the outstanding areas of the TOM designed by the Design Working Group and identifying the areas of the industry codes and subsidiary documents which require amendment to implement the TOM
- an Architecture Working Group, chaired by ELEXON, which is developing the system architecture design required to enable the preferred TOM
- a Design Advisory Board, chaired by Ofgem, which provides a strategic assessment of market-wide half hourly settlement recommendations, and advise the Ofgem Senior Responsible Owner
The Design Working Group discharged their duties when they delivered their final report in August 2019. We are now in the development phase of the TOM design, and the Code Change and Development Group and Architecture Working Group have been meeting every month since December 2019.
Updates on the work that is being carried out in the AWG and CCDG can be found in our MHHS monthly newsletter. All editions of our newsletter can be found in the Newsletter section below. If you are interested in specific areas of the detailed TOM design, links to all the papers from CCDG and AWG discussions organised by detailed design area can be found on the detailed TOM design page of the Ofgem website.
Impact of COVID-19 on the TOM work
Ofgem is prioritising work in response to the coronavirus (COVID-19) crisis. We are focussed on ensuring that the energy industry can effectively respond to the coronavirus crisis, and our priority is to protect consumers, especially vulnerable people, and to maintain Britain’s supply of electricity and gas. We will also deliver our statutory obligations and progress time-critical work, being mindful of stakeholder capacity to engage.
Following our discussions with ELEXON, the CCDG and AWG members, we support the intention to continue the work with the CCDG and AWG at the current time, and subject to review as circumstances change. Continuation of this work needs to take account of the impact of the current situation on participants, and will only continue to be appropriate as long as members’ resourcing capacity allows and a sufficient cross-section of representation is maintained. We have also asked the workgroups to not undertake any formal consultations at this time and not to progress any activities that could be seen to materially pre-judge the results of any CCDG/AWG consultations not yet undertaken.
We will consider the impact on the overall timescales of the CCDG and AWG once we have agreed to resume the group’s consultation activities.
You can find our full letter to ELEXON on our approach, on the ELEXON website.
Business Case
We are using the HM Treasury Five Case Model to develop and maintain a Business Case to support the decision on market-wide settlement reform. We had intended to publish the Full Business Case in autumn 2020. However, we are reviewing the project’s timescales in light of the ongoing public health situation.
We are using the Business Case as an aid to the decision-making process and as a tool for communicating with our stakeholders about the arrangements for designing and implementing market-wide settlement reform. We published our Strategic Business Case in February 2018. Building on this, we published our Outline Business Case (OBC) in August 2018. The OBC, the feedback we received on it and Ofgem's response to that feedback are all available on our website.
In August 2019 we issued a request for information (RFI) on the impacts of moving to MHHS. The responses helped inform our draft Impact Assessment which we published in April 2020 alongside a consultation document. This consultation will inform the Full Business Case.
Policy
Access to Data
In order to settle customers half-hourly, suppliers need access to their customers’ half-hourly data from their smart meter. As part of our work on market-wide settlement reform, we have been considering the future of the rules around access to consumer smart meter data for settlement and forecasting purposes. We want to ensure that we are able to realise the benefits of the reforms whilst also ensuring that consumers’ privacy in relation to their personal data is appropriately safeguarded.
In July 2018, we published a consultation seeking views on a number of questions related to data access for settlement and forecasting purposes. Alongside the consultation document we also published a Data Protection Impact Assessment (DPIA). We published our decision document and updated DPIA (v2) in response to that consultation in June 2019. We also published an open letter clarifying issues around access to data for settlement purposes in April 2020.
Consumer Impacts
We expect that uptake of the innovative products and services enabled by settlement reform will help consumers offer flexibility, allowing them to play a key role in the development of a smart, flexible and decarbonised energy system. We want to better understand the likely responses of consumers and suppliers to the combined signals and tariff options which we expect to emerge. In February 2019 we published a Call for Evidence to explore the potential impacts on domestic and small non-domestic consumers, and how they may respond depending on their circumstances and characteristics. The evidence gathered through this process will help us develop the Business Case for market-wide settlement reform.
Most recently, we published a Consumer Impacts paper in April 2020 examining the evidence around how consumers are likely to respond to innovations enabled by half-hourly settlement and how to mitigate any potential adverse impacts. Irrespective of individual consumers’ engagement, we expect all consumers to benefit from the system-wide changes enabled by MHHS.
Newsletter
During the development phase of the TOM design we are publishing a monthly Newsletter to keep stakeholders up to date with the discussions between formal consultations.
Newsletter
In addition to being a regular information source, the newsletter is intended to become a conduit for engaging with Ofgem alongside the formal consultation or Request for Information routes. Please get in touch with any questions or comments you have.
- MHHS Newsletter - March 2020
- MHHS Newsletter - May 2020
- MHHS Newsletter - June 2020
- MHHS Newsletter - July 2020
- MHHS Newsletter - August 2020
- MHHS Newsletter - September 2020
- MHHS Newsletter - October 2020
- MHHS Newsletter - November 2020
- MHHS Newsletter - December 2020
- MHHS Newsletter - January 2021
- MHHS Newsletter - February 2021