The UK Takes A Step Towards Smarter Energy System
Ofgem has recently announced that it aims to introduce half-hourly settlement across the whole of the retail electricity market by October 2025. Interim director at the company, Anna Rossington, said that they had been given the green light to roll out this major milestone in transitioning to smart and flexible energy systems. This development could well deliver significant benefits to small business electricity prices. It is also crucial to the UK’s residential and business electricity aspirations, such as achieving Britain’s net-zero climate goals and lowering the cost for consumers.
With the extension of the half-hour settlement scheme, previously only applicable to manufacturers and large businesses, smaller companies and consumers may save around £1.6-4.5 billion (€1.84-5.18 billion) by 2045. This is because the change will enable smarter usage of the network based on energy demand and therefore play a bigger role in reducing the need for new and large-scale generation facilities.
It will take a long time to implement the plans because, in the interim, there will be a transition and testing phase to ensure that any issues can be resolved before it is rolled out to small businesses and consumers by 2025. This timeline may not be as swift as many would have liked, but it is still a positive step that will enhance innovation in the energy market; help support alternative means of energy further down the line; and reduce consumer and small business electricity prices over the longer term.
As noted, heavy electricity consumers like manufacturers and large businesses are already being billed on a half-hourly basis. Consumption is measured every 30 minutes to generate accurate bills based on exactly how much energy is being used. Residential households and smaller businesses are still for the larger part having consumption estimated and then recalibrated when meters are finally read, resulting in extra payment demands or refunds for overpayments.
When implemented, this more accurate consumption data will help power companies to offer flexible time-of-use tariffs. This means they will be able to charge varying prices based on the consumption and use of energy at specific times in the day.
These will also encourage the take-up of other technologies that use and store energy efficiently, like on-site renewables, electric vehicles, solar panels, and so on.
Ofgem’s Market Wide Half Hourly Settlement (MHHS) is just one part of the regulator’s 2017 Electric Settlement Reform Significant Code Review. The consultation surrounding the extension of the implementation of MHHS took place from late January until early April, and during that, Ofgem stated that it intended to make the industry responsible for managing and delivering MHHS. While the regulator will oversee the transition, it has appointed Elexon, a not-for-profit entity comprised of participants in the energy market, to manage the process.
Solar Energy UK welcomed Ofgem’s proposals. However, it’s notable that the MHHS proposals do seem to contradict the regulator’s decision as part of its Targeted Charging Review in 2019 to apply standard ‘residual charges’ – that recover the expenses related to running the grid – to all consumers, regardless of size or type. This failed to acknowledge any steps businesses had taken or intended to take to invest in reducing their power consumption, such as solar energy or energy storage.
This, in effect, disincentivised companies from using renewable energy and reducing their carbon footprint. Nonetheless, the move towards MHHS demonstrates Ofgem’s progress towards net zero.
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