Market-wide half-hourly settlement to benefit consumers by up to £4.6bn

Market-wide half-hourly settlement (MHHS) is expected to benefit electricity consumers by between £1.61 billion to £4.56 billion over the next 25 years, according to a draft impact assessment published by Ofgem.

The regulator estimated the benefits to wider society at between £707 million and £3.11 billion.

“MHHS will send accurate signals to suppliers about the cost of serving their customers throughout each day,” Ofgem explained. “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.

“Making best use of existing infrastructure should reduce the need for future generation and network investment. This will help decarbonise the sector cost-effectively, which will benefit all consumers and wider society.”

Ofgem released the document alongside a consultation on the target operating model developed by a working group led by Elexon – the administrator of the Balancing and Settlement Code.

Under this model, data would not be aggregated until after it has been transferred to the central settlement systems. Ofgem said this would be more cost-efficient than the current arrangements and allow more flexibility in how the data is aggregated.

The initial settlement run would take place five to seven working days after the settlement date. The final reconciliation would take place after four months and the post-final settlement after up to 20 months.

At the time of its analysis, Ofgem had intended to implement the new arrangements over a four-year transition period. The regulator expected the industry and Elexon to “prepare, build and start to test their systems” out to mid-2022, at which point they would be ready for external testing. During 2023, suppliers would finish testing the systems and supplier agents would be qualified. Customers would be migrated into the new systems in 2024.

Ofgem said, whilst it still believes a four-year transition period is realistic, the start date will likely need to be pushed back due to the coronavirus pandemic and it is reviewing the project timetable. It has not given a deadline for responses to the consultation. The regulator said it would publish an update on its website and give at least 10 weeks’ notice.

Last September, Ofgem delayed its final decision on MHHS until the third quarter of 2020. The decision was previously scheduled for the second half of 2019 but had already been pushed back from the first half of 2018.