The way we power our cars and heat our homes in the future is going to change significantly if we are to effectively tackle climate change. Britain is already moving towards phasing out the sale of new petrol and diesel vehicles by 2030. A clear sign of this change saw electric vehicle sales increase by 180% in 2020. In the future we will also be looking to low carbon ways to heat our homes like heat pumps, electric heating or running boilers on hydrogen gas. To meet this rising energy demand for transport and heat, Britain needs a smarter, more flexible energy system.
This is why I’m pleased to announce that Ofgem has given the green light to rolling out market-wide half-hourly settlement across the retail electricity market. This decision marks a major milestone in the transition to the smart, flexible energy system essential to Britain achieving its net zero climate goals at the lowest cost to consumers.
So what is half-hourly settlement and why is it important?
Market-wide half-hourly settlement is a vital enabler of flexibility. It builds on changes already made requiring half-hourly settlement for medium to large non-domestic consumers, and elective half-hourly settlement for domestic and smaller non-domestic consumers.
It will send accurate signals to suppliers about their customers’ electricity use and the cost of serving those customers throughout each day. This will place incentives on suppliers to offer new tariffs and products that encourage more flexible use of energy and help consumers to lower their bills, for example time of use tariffs, automation, vehicle to grid solutions and battery storage.
This will enable the industry to make best use of existing infrastructure which should reduce the need to build expensive new generation as electricity consumption increases with a move to more electric cars and new forms of heating. This increased flexibility will help the sector cost-effectively reduce its carbon footprint, which will benefit all consumers and wider society.
Ofgem estimates that half-hourly settlement will save consumers an estimated £1.6 billion to £4.5 billion by 2045.
Implementation of the new system is expected to take place over a period of four and a half years and to be complete by October 2025. This transition period will allow extensive testing to take place, so any issues can be resolved before the new system goes live.
Elexon, the industry body, will be Programme Manager. Elexon will be accountable to Ofgem and we will be monitoring progress very closely.
The new system will use data collected from consumers’ smart meters. Domestic consumers will have a choice about the level of data that they share for these purposes, and those who do not wish to share their half-hourly data will be able to opt-out. Suppliers are best placed to communicate with consumers about their data sharing options, and we will work closely with industry to formulate clear and effective communications which can be used consistently across all consumers.
These reforms are complex, but we know there’s a huge appetite across the sector to make these vital changes a success.