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NEWS | HH Settlement - Industry changes and ENSEK's views

Written by

Sarah Smith, Head of Consulting & Regulations

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Co-authors: Sarah Smith and Jolyon Canlin

Update on Market Wide Half Hourly Settlement consultation

On 30th April this year Ofgem issued a draft impact assessment and consultation proposing the introduction of Market Wide Half Hourly Settlement (MWHHS) across the electricity retail market. This should allow retailers to innovate more and enable flexible use of energy including time of use tariffs, EV to grid and battery storage. Implementing MWHHS would expect to provide net benefits for GB consumers of £1.607bn - £4.557bn.

Initially setting no deadline for this consultation due to the current Covid-19 pandemic, Ofgem stated at least 10 weeks’ notice would be provided once a date was set. As of 17th June, Ofgem has issued a consultation closing date of 14th September 2020. In addition, there is a plan to host two virtual stakeholder workshops, the first on 22nd July and the second in early September. This is to assist stakeholders in asking questions and gaining further clarification on the consultation and the proposals.

The Design Working Group's preferred Target Operating Model

The consultation covers the Design Working Group’s (DWG) preferred Target Operating Model (TOM) in which non-aggregated data will be made available to the Balancing and Settlement Code (BSC) central settlement systems.

Design Target Operating Model
The Design Working Group's preferred Target Operating Model
  • Proposed changes to settlement timeframes:
    • Initial settlement run (SF) would be between 5-7 working days
    • Final reconciliation run (RF) to be 4 months after settlement date
    • Post final settlement run (DF) to be 20 months after settlement date if required
  • Proposed settlement arrangements for import and export related meter points (MPANS) with the same transition period
  • Transition time to the new settlement timeframes – a four-year transition period is still being considered in light of the current pandemic and is subject to reassessment, it also covers data access and privacy related questions and programme governance.

Ofgem are also seeking stakeholder’s views on the impacts that Covid-19 will have on projected timescales.

Full in-depth details for the proposed changes can be found on the draft impact assessment and consultation document(s) on Ofgem’s website.

However, if you want to know more about the programme and the work that ENSEK are doing to prepare for this significant industry change please contact the Regulations Team or speak to your Account Director.

ENSEK’s view on HH Settlement

As a company founded to help suppliers to reduce their billing and settlement imbalance, we feel strongly that a move to HH Settlement can’t come too soon for the industry. ENSEK’s technology and managed service teams ensure our suppliers minimise their imbalance. However, fixing the system is far better than managing the outcome. HH Settlement will result in suppliers being settled against actual usage, rather than outdated industry curves, which often don’t match the consumption of their customers.

The resulting shortening of the settlement period is also broadly welcomed. Again, ENSEK suppliers will be well positioned to handle this, through a tech-led approach to settlement exceptions. Reducing RF will bring challenges for more mature energy suppliers on older tech stacks, who may have large numbers of ‘dormant’ customers, who haven’t engaged with the supplier for many years.

A number of activities will be key for them to succeed with the proposed new rules:

  • Identification of customers, who are settling on estimated data
  • Prioritising these customers against the wider portfolio
  • Tariff and credit management for disengaged customers
  • Tactical read strategy
  • Robust operational management of DC/ MOP led by data analytics

Industry curves

Whilst the industry profile class curves provide an average expected consumption for domestic and small SME customers, in any portfolio, there will be many customers, who use energy very differently from the 4 profile class curves available for residential and SME customers: healthcare professionals, members of the emergency services, retail and factory workers and anyone else who works shifts for example.

Customer
Profile customer - average weekly weekday

(Please see here for more detail about the settlement curves).

Elective HH Settlement – getting ahead of the curve

For suppliers with a large proportion of smart meters, there is an opportunity to take advantage of the benefits of HH settlement, before mandatory market wide HH settlement comes in. Through use of actual HH consumption profiling, suppliers can identify those customers furthest away from the industry curves and opt to settle them half-hourly.

These customers will tend to use more energy at times of the day when energy is cheapest and less when it is most expensive. Our calculations suggest that there can be benefits of 5% of the cost across wholesale (trading imbalance) and third party (non-energy direct) costs combined.

For movement of 100,000 domestic electricity meters, this is a cost saving of £1.85m p/a. A further benefit, is that those customers who are left in standard settlement are those, whose usage is closest to the settlement curves and so, settlement imbalance for the rest of the portfolio should also reduce.

What ENSEK can do for you

ENSEK has the functionality to change measurement class, and bill and settle half-hourly for domestic and SME customers. We are also able to support profiling and identification of customers, who would provide most value when moved into HH settlement.

Please contact Sarah Smith or your Account Director if you would like to explore elective half-hourly settlement further or the impact of mandatory half-hourly settlement on your company.

Picture attribution.