Elexon: Code bodies no longer operate in a safe space

It is almost a year since I started as chief executive of Elexon. I am very pleased to be leading a company which has a reputation for delivering high levels of customer satisfaction. Together with all of my colleagues, I am working to improve the service we offer, so that we can better support all companies that operate under the Balancing and Settlement Code (BSC) arrangements.

The BSC is one of the 10 codes providing the commercial arrangements underpinning the energy system. It is more than 20 years old and we have done a good job in managing it.

The BSC has, and will continue to play, an important role in net zero. For example, we are working alongside the industry to create successive opportunities for demand-side response providers and smaller scale low carbon generators to provide balancing services.

Elexon has become a trusted delivery partner for sectoral reforms. Through the Marketwide Half Hourly Settlement (MHHS) Programme Implementation Manager role, we will be delivering one of the biggest changes to the retail market since competition was introduced.

However, alongside other code bodies, we must adapt to the challenges that the sector faces. Code bodies were created for a market that looks very different from the one we have today. The benign wholesale price environment of the early 2000s (relative to the volatile market we see today) was a ‘safer space’ for code bodies to operate in. Rapid moves to a more decentralised system also require greater innovation and swifter changes to code rules than code bodies have been able to muster previously.

The higher wholesale price environment, and the wider economic outlook are putting significant pressure on some of our customers. We owe it to all BSC Parties, and to households and businesses who ultimately pay for the BSC as part of their bills, to deliver the best value that we can.

We have developed a new strategy for Elexon which sets a goal for 2026 to significantly improve the speed of our support for BSC Parties, and reduce the cost of our services. We want to be recognised for excellence, innovation and value for money, and as a body which helps the industry move faster towards net zero.

How will we get there? Firstly, we must deliver MHHS implementation on time, and on budget for the industry. We are working with Ofgem and parties to ensure that there is rapid progress, with the first tranches of meters migrated to MHHS systems in spring 2025 (subject to the MHHS re-plan). MHHS is an enabler for innovation, allowing us to deliver faster settlement (reducing from 14 months to 4 months).

We must complete the roll out of our new cloud platform (Elexon Kinnect) and have switched off the legacy IT systems that it will replace by October 2024. This includes migration of systems which conduct the daily settlement runs, and completing our new, more comprehensive wholesale market data service (the Insights Solution).

Our Kinnect platform gives us flexibility to expand our services if we need to, to support BSC Parties. Both programmes will put us in a stronger position to support net zero.

We will need to continually demonstrate that we can work proactively with Ofgem and government to implement policy changes. Ofgem has confirmed that it wants to license code managers and direct them to deliver strategic change. We are ready to work with them on the implementing the new regime, and our view is that it should be proportionate, light-touch, and outcome-based.

The new licensing arrangements are likely to require all code bodies to be more proactive in managing rule changes. Complex changes can take several years to deliver, and code bodies will need to speed up this process as the energy transition progresses. We believe that the expertise of the industry in the development of rule changes should be retained. This is important for helping us to deliver this enhanced role.

It will be quicker for Elexon to implement BSC changes using our Kinnect platform, as we will not need to spend as long on testing the changes on ageing systems. We will endeavour to use innovation to speed up change, working with parties to try new approaches to old problems. Rule changes require our legal team to identify, consult on, and update BSC rules. Now that we have digitalised all of the BSC code documents (more than 10,000 pages of content) we need to find ways to use automation technology and new techniques to assist with speeding up the rule implementation process.

When the Energy Security Bill becomes law, there may only be a few months in which to implement the new Future System Operator model. government and Ofgem have announced that Elexon will continue to be owned by industry, which we fully support as it will involve minimal change for both our company and BSC Parties. This will help us fully focus on delivery of our major programmes. We will work with Ofgem and the Department for Energy Security and Net Zero (DESNZ) to quickly implement these changes.

Further afield, the Review of Electricity Market Arrangements could result in fundamental changes to design of the wholesale electricity market. The emerging distribution system operator role could pave the way for local flexibility markets and system balancing. We will continue to offer our expertise, as well as impartial, independent advice to government and Ofgem on these, and any other reforms impacting the market.

Over the coming years our focus will be on delivering excellence in our day job of managing settlement, and working out how we can improve the value we offer to BSC Parties. We are fortunate to have a wealth of industry expertise in Elexon and we will work as a team to raise the bar and deliver exceptional value to our customers.

The changes I mention above are a major opportunity to reconfigure how central services are delivered so that Elexon can meet the challenge of supporting net zero. We look forward to working with industry to navigate these changes and make sure that they benefit all of our customers.