Electricity Settlement Reform

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
  • 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. We have published our decision.

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. See our document and the feedback we received on it (including a summary of that feedback)

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 on our website.

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).

We published our decision document and updated DPIA (v2), in response to that consultation in June 2019.

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. See The Call for Evidence, a summary of the responses to it, and the responses received can be found on our website.

Publications and updates

  • 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.

  • Published: 20th May 2019
  • Decisions
  • 0 Associated documents
Ofgem has decided to appoint new members to the ELEXON chaired Design Working Group developing the Target Operating Model.

  • Published: 15th Apr 2019
  • Agendas, minutes and presentations
  • 3 Associated documents
The minutes, agendas and slides for the sixth meeting of the Design Advisory Board (DAB) was held on the 31st January 2019.

  • Published: 2nd Apr 2019
  • Guidance, Open letters and correspondence
  • 0 Associated documents
Ofgem is opening up applications for the membership of the DWG as it moves into developing the transition approach for the TOM to MHHS.

  • Published: 22nd Mar 2019
  • Agendas, minutes and presentations
  • 3 Associated documents
The minutes, agendas and slides for the fifth meeting of the Design Advisory Board (DAB) was held on the 25th September 2018.

  • Published: 22nd Mar 2019
  • Agendas, minutes and presentations
  • 3 Associated documents
The minutes, agendas and slides for the sixth meeting of the Design Advisory Board (DAB) was held on the 27th November 2018.

  • Published: 12th Mar 2019
  • Guidance
  • 0 Associated documents
See our settlement reform update: March 2019.

  • Published: 19th Feb 2019
  • Guidance, Reports and plans
  • 0 Associated documents
The ELEXON-chaired Design Working Group has published a consultation on the preferred Target Operating Model to enable market-wide half-hourly settlement.

  • Published: 15th Feb 2019
  • Reports and plans
  • 4 Associated documents
The ELEXON-chaired Design Working Group has delivered a preferred Target Operating Model (TOM) to enable market-wide half-hourly settlement.

  • Published: 5th Feb 2019
  • Open letters and correspondence
  • 22 Associated documents
See our Call for Evidence on potential consumer impacts that may arise following electricity settlement reform and network access and forward-looking charging reform.

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