Ofgem greenlights market wide half-hourly settlement across the retail electricity market

Ofgem has greenlit market wide half-hourly settlement across the electricity retail market with the programme expected to save consumers £1.6 billion to £4.5 billion by 2045. What does this mean for energy suppliers?

What is Half Hourly Settlement?

Why the change?

The main driver for the changes is the government’s aim of slashing carbon emissions and encouraging the uptake of electric vehicles and electric heat pumps. These changes require more accurate data and flexibility, and this is where half-hourly settlement comes into play.

Currently, most domestic and small non-domestic electricity customers do not have meters that can record half-hourly consumption, instead, energy suppliers have to estimate for each half-hour. A system that can result in inaccurate energy billing and inaccurate data.

Ofgem believes that the change will create a more flexible system across the country and allow energy suppliers to offer customers new tariffs such as time of use tariffs and products that will give them better information as to how and when they should use their electricity.

Increased flexibility can also reduce the need for new and expensive infrastructure expansions to manage the forecasted increase in demand for electricity when motoring and home heating go fully electric.

“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 roll 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,” said Anna Rossington, Interim Director, Retail at Ofgem in a blogpost.   

Ofgem estimates half-hourly settlement would save consumers between £1.6 billion to £4.5 billion by 2045.

Also read: Top Tips for complying with the Ofgem Electricity Supply Licence Conditions

Who will run it?

Elexon will be put in charge as programme manager for the implementation and will be accountable to the energy regulator.

Elexon administers the Balancing and Settlement Code (BSC) on behalf of the UK electricity industry and ensures all qualified parties operate within the BSC guidelines.

Smart meter data will be crucial for allowing Elexon to collect data, however, consumers will be given the choice as to how much data they are happy to share as well as the option to opt-out of half-hourly data collection.

The challenges

With so much of the half-hourly settlement relying on smart meters, we can expect more pressure to be put on energy suppliers to increase the pace of installations.

The smart meter rollout has faced numerous challenges and was hard hit by the lockdowns caused by the Covid-19 pandemic.

Recently released data, however, showed that suppliers are rising to the challenge as the number of installations rebounded strongly in March with 219,000 recorded.

Suppliers may also face some resistance from consumers sceptical that their data will be safe as well as the other arguments some have against smart meters.

Also read: Energy Suppliers under pressure to step up Smart Meter rollout in 2021- How not to alienate customers

When will it come into effect?

According to Ofgem, the implementation to full half hourly is expected to take 4 years and 6 months with competition expected by October 2025.

Energy suppliers have been consulted on the plans with the plan set to be reviewed in October 2021.

Ofgem proposes to establish a threshold of 3 months beyond which any changes to the length of the plan would be subject to Ofgem approval.

Need help with your data quality? Contact us for how Dyball Associates Managed Services for Energy Suppliers can assist.

Further Reading

Number of consumers switching energy supplier soars after Ofgem Energy Price cap rise

The key compliance and regulatory issues new energy market entrants need to know

Are you ready for the new smart meter rollout obligations?

Dyball Associates are proud to help new supply businesses successfully launch in the UK market.

Through our energy market consultancy services, and the software we've developed, we're supporting new UK electricity and gas suppliers get set up and start supplying.

Follow us on LinkedIn to keep up to date with the latest news and updates in the energy industry.