Electricity Settlement Reform

Electricity settlement

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 worth of benefits by 2050.

We consider it is in consumers’ interests to be settled using half-hourly consumption data from smart meters. 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 will be made in Q3 (July-September) 2020 and is subject to cost-benefit analysis.

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:

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:

an ELEXON-chaired Design Working Group that 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 Design Advisory Board, chaired by Ofgem, to provide a strategic assessment of Market-wide half hourly settlement recommendations, for the TOM, and advise the Ofgem Senior Responsible Owner
The Design Working Group discharged their duties when they delivered the final report in August. We will soon announce the proposed structure for the next phase of work on the development of the TOM.  We will be asking for your feedback on our proposals.

Supplier agents carry out certain functions related to settlement on behalf of suppliers (or, in some cases, customers). As part of our work on market-wide settlement reform, we have looked at whether or not to centralise functions currently performed by supplier agents. Our decision can be found here.

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 in Q3 (July-September) 2020. We will use 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 Outline Business Case in August 2018. The document and the feedback we received on it (including a summary of that feedback) are all available here. 

In August 2019 we issued a request for information (RFI) on the impacts of moving to MHHS. The responses to this RFI will help inform a draft impact assessment and we will consult on this as part of developing the Full Business Case. The RFI is available here.

Policy Areas

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 about this, as well as other issues related to data access for settlement. In July 2018 we published a consultation seeking views on a number of questions, in order to realise the benefits of settlement reform whilst ensuring that consumers’ privacy is appropriately safeguarded. Alongside the consultation document we also published a Data Protection Impact Assessment (DPIA).

Our decision document and updated DPIA (v2), published in response to that consultation in June 2019, can be found here.

Consumer Impacts

We expect that uptake of the innovative products and services enabled by Market-wide Half-hourly Settlement 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 consumers’ and suppliers’ likely response to the combined signals and tariff options which may emerge following the introduction of market-wide settlement reform. In February 2019, we published a Call for Evidence to explore and help us better understand 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 the Call for Evidence and through further stakeholder engagement will help us develop the Business Case for market-wide settlement reform. The Call for Evidence, a summary of the responses to it, and the responses received can be found here.

Publications and updates

  • Published: 6th Sep 2019
  • Open letters and correspondence
  • 1 Associated documents
An update of the timetable and milestones for the Settlement Reform Significant Code Review.

  • Published: 2nd Sep 2019
  • Agendas, minutes and presentations
  • 3 Associated documents
The minutes, agenda and slides for the eighth meeting of the Design Advisory Board (DAB) which was held on the 4th of June 2019.

  • Published: 22nd Aug 2019
  • Open letters and correspondence
  • 3 Associated documents
This Request for Information is seeking data and evidence on the costs and costs savings of moving to Market-Wide Half-Hourly Settlement. This information will inform the draft Impact Assessment that will be an important part of the Full Business Case.

  • Published: 17th Jul 2019
  • Open letters and correspondence
  • 2 Associated documents
Ofgem seeks comments on a draft RFI about the impacts of moving to market-wide half hourly settlement.

  • Published: 11th Jul 2019
  • Open letters and correspondence
  • 1 Associated documents
This working paper sets out our considerations to date on the potential future changes to the energy market which the TOM design work will need to take into account.

  • Published: 1st Jul 2019
  • Guidance
  • 0 Associated documents
Settlement Reform update: July 2019, including notification of stakeholder webinar on draft RFI.

  • Published: 25th Jun 2019
  • Decisions
  • 2 Associated documents
Consultation on access to half-hourly electricity data for settlement purposes: Ofgem response and decision following stakeholder feedback.

  • Published: 12th Jun 2019
  • Reports and plans
  • 15 Associated documents
The Outline Business Case is the second iteration of the Business Case for market-wide settlement reform.

  • Published: 10th Jun 2019
  • Guidance, Reports and plans
  • 0 Associated documents
The ELEXON-chaired Design Working Group has published a consultation on the transition approach to the preferred Target Operating Model to enable market-wide half-hourly settlement.

  • Published: 30th May 2019
  • Decisions
  • 1 Associated documents
Consultation on supplier agent functions under market-wide settlement reform: Ofgem response and decision following stakeholder feedback.