Ofgem’s electricity settlement reform programme—the Market-wide Half Hourly Settlement (MHHS) Significant Code Review (SCR)—is around the half-way point towards introducing arrangements that ensure the benefits of smart meters can be delivered to enable “a smart, flexible, energy system”.
The ambition is for smart meter data to be used within the electricity settlements system to allow innovation to support smart charging of electric vehicles (EVs), vehicle-to-grid EV services, local energy markets, time of use (ToU) tariffs, and ‘prosumer’ offerings that encapsulate demand side response (DSR) and behind-the-meter generation and storage at household and smaller business sites. More accurate and timely data should also deliver wider efficiencies to BSC parties through shorter settlement timeframes and reduced credit cover.
At market opening, smaller consuming sites (households and smaller business sites) were settled on profile classes representing the half-hourly demand of eight consumer cohorts where it was not cost-effective to install meters that could be read every half-hour. During this decade suppliers have installed Automated Meter Reading (AMR) equipment at business properties, which has increased the number of meters settled half-hourly (HH) from around 130,000 (the original HH community where demand is greater than 100kW) to around 350,000.
Government statistics show that as of Q1 2019 around 9mn electricity smart meters had been in installed. This is just under a third of the target. Despite the number of meters installed we believe that only a very small number (a couple of thousand at most) are HH settled.
The settlement system is now at a point where just over 1% of meters are HH settled, but for the first time ever around half (and falling) of all settled supplier volumes is on an NHH basis (see chart).
The end game for the MHHS SCR is for all volumes and the remaining 99% of meters to be HH settled. This represents a huge endeavour for the sector, as although the primary use for settlement data is to assign supplier’s imbalance volumes and charges, the data is also used for:
- distribution and transmission network charging
- supplier BSC performance assurance purposes
- calculating supplier Capacity Market and Contract for Difference charges
- validating supplier volumes for their Renewables Obligation and Feed-in Tariff liabilities
So, although it is conceptually relatively straightforward to understand how the use of timely and actual consumption (and distributed generation) data can be used to develop offerings to unlock DSR and other opportunities, the central and supplier systems impact and associated rule changes will be a huge challenge. Crudely put, to HH settle the remaining electricity volumes represents around a hundred-fold increase in data collection, aggregation and validation compared to the existing half of HH settled volume.
Ofgem is hoping to reach a decision by the end of this year on how to implement MHHS, and although it has not given a firm go-live date for the change we cannot see this being any earlier than 2022. Over this period the review of electricity network charges should have concluded, new BSC performance assurance measures will be in place, faster more reliable switching infrastructure should be operational, and the smart meter roll-out should be complete.
The coming months and years will be particularly challenging for suppliers as they gear up for the introduction of market-wide HH settlement itself, but also how settlement data will be used to derive charges and what this means for tariff prices and the risk and opportunities in offering ‘smarter’ products. Even so, suppliers will also have to maintain existing processes and systems to serve the NHH market for a few more years yet.
To learn more about current and future settlement arrangement, we are holding our Electricity Settlements: From the Meter to the Bank training course in London on 20 June. For more information, click here, or contact training@cornwall-insight.com
