Within minutes of meeting Elexon’s busy chief executive Mark Bygraves, it’s easy to spot he’s a trained lawyer. Sharp, measured and committed to sticking to a polite but firm line, you quickly realise he is totally focussed on achieving three key goals in his role with this cornerstone operation of the wholesale electricity market. He is also determined to get them across in our interview.
The first is to raise more awareness about Elexon and the Balancing and Settlement Code (BSC) for which it is responsible and to demystify its work to newcomers. Another is to do all it can to enable new entrants to join the electricity market. Thirdly, he is keen to reveal his vision of how much more Elexon could do to support the industry in the relentless transformation of our energy system.
We are meeting at the operation’s modern, welcoming home – on the fourth floor of a swish central London block on Euston Road – a world away from some expectations of what a code administrator’s office might look like. Which is appropriate, as Bygraves, who has been in the sector for 25 years following a law career in private practice, is committed to changing any misconceptions about the operator and the market’s accessibility – particularly to the growing number of new participants, and those with fresh business models, faced with navigating the complexities of the system.
Elexon currently deals with more than 400 electricity sector ‘BSC parties’ or ‘customers’ across Great Britain, including suppliers, generators, distributors, traders, energy importers and exporters, to administer the wholesale electricity code, procure services to implement it and calculate any costs when a difference occurs between the agreed and actual activity amongst all those working parts.
And whilst established by the energy industry, Bygraves prides himself on its impartiality, pointing out it is independent, funded on a zero-profit basis and receives consistently positive customer service reviews.
But he recognises it needs and wants to do more.
Our meeting has come about following the first in a series of Utility Week CEO Insight premium reports, revealing what leaders of the UK’s major utilities really think about the economic and political climate in which they’re operating – including its ever-increasing, complex regulation.
Refreshingly, Bygraves – who joined Elexon in 2011 before taking up the CEO reins in 2014 – concurs with some of that disquiet and, what’s more, is keen to join the conversation.
“I share their concerns that across our sector we are subject to a large and increasing amount of regulation.
“Having said that, it is therefore, I think, incumbent on us all to see how we can work with customers [BSC parties] and new market entrants and business models – firstly, to help them through that regulatory landscape and, better still, to find ways to simplify that landscape.”
Elexon, he believes, is well-placed to make a major contribution. It has long-believed the market’s mechanisms should be doing more to facilitate innovation and change, which led to its recent white paper outlining how it could help enable consumers to buy power from multiple providers, as opposed to the existing ‘supplier hub principle’ arrangements. It will follow up with another soon, looking at the local balancing activities that would arise, as the distribution network operator (DNO) landscape shifts to one of distribution system operators (DSOs).
“We think we have a track record and expertise that could be really usefully applied for industry in that space.”
Welcome to the market
When it comes to new market entrants, Bygraves accepts that ensuring the BSC is straightforward and fit for purpose is vital in a changing energy world.
“It is detailed. And that does mean we are conscious that it can be difficult for the smaller parties or the newer entrants to fully participate in those arrangements.”
It is also why, unlike other code bodies, he says, it has ‘operational support managers’ [OSMs] dedicated to specific parties – something he adds that came out well in independent customer surveys and was highlighted in Ofgem’s cross-code body survey.
Last year his market entry and OSM team of a dozen people helped more than 65 new entrants or business models come to market by joining the balancing mechanism. Some were acting as traditional suppliers, some more niche, others were companies aiming to become aggregators. There were also generators, the vast majority in renewables.
It’s a fluid picture but, as revealed in its white paper, Elexon has some big ideas on how to help more people enter seamlessly into the system – including community schemes and peer-to-peer trading.
A key move by Elexon is the introduction of its BSC ‘sandbox’, aimed at allowing entrants to benefit from a derogation from some of the BSC obligations for a limited time to trial how ideas work in the real world.
“I think we can all agree that this sector is already going through more change now than it has since the introduction of competition in 1998 – and yet we’re only in the foothills. There is even more coming, driven by the three ‘ds’ [digitalisation, decarbonisation and decentralisation].”
It is a far cry from 1990 when the current market arrangements were designed at the time of privatisation and then again in 2001, which saw the introduction of NETA [New Electricity Trading Arrangements]. Back then, the system comprised a few large power stations connected to the National Grid, which transmitted their electricity down to the DNOs and ultimately the consumer.
Now there is the growth of renewables, such as solar, much of which can be small-scale and connected at the distribution network level. “It is turning the electricity market upside down,” says Bygraves.
“So my goal, and that of my leadership team, is to ensure the market arrangements we are responsible for are not only enabling change and innovation – but further change and further innovation. We are keen to ensure we are focusing on solutions – all of which led to the white paper.”
Over the last three years it has been working on three top priorities:
- maintaining ‘business as usual’ high standards and service for the market
- becoming more customer-focused
- engaging further with senior executives and energy players to understand the new challenges they face and what they need from Elexon.
And the approach he says has been paying off. “We are engaging more than ever and trying to be more proactive now in coming up with solutions for industry. But we’re not complacent – we use the results of our surveys and sessions to improve and move issues along.”
Being at the heart of the workings of the energy system, Bygraves gets to hear a lot of industry views, although he is conscious Elexon is just one part of a chain.
Dealing with people at all levels, the overwhelming message he hears is of the enormous change and challenges coming for electricity, how everyone is working hard to be prepared, and how they are all encountering increased intervention from government and the regulator.
“We are just a part of the jigsaw, yes. But that still makes me determined to address the part that we are responsible for – operating the wholesale electricity balancing and settlement arrangements and enabling new participants. In fact, the evidence is that there are a whole number of parties joining all the time.
“But, coming back to our priorities, we quickly need to ensure the market arrangements can accommodate all these dynamic new business models.
“Let me be stronger. What is not acceptable for our sector to say is that the market arrangements are preventing this innovation. So that’s about us getting out there and ensuring that we have the processes to capture their enquiries and to facilitate industry changes.”
Bygraves sees three key challenges to this vision for change.
- Developing the BSC to be ‘flexible enough’ to allow the changes.
- Ensuring the suite of systems that underpin the balancing and settlement arrangements can support the new services and needs of industry today.
- Making sure those mechanisms, designed 15 years ago and that “remain perfectly good for today’s incremental change”, are suited to the services and types of user of the future.
“I am determined that we will have that system. And, very importantly, we are engaging with industry on those system changes.” And enabling consumers to have multiple providers – potentially moving away from the current ‘supplier hub principle’ – is just one of those system changes.
“Ofgem is saying that the supplier hub could be looked at, as part of a significant code review, which is an Ofgem-led process. But we believe that we could enable multiple providers far quicker if this is desired. And that’s an important point – far quicker than unpicking the supplier hub. We think we can do this by 2020, and all volumes. And Elexon believes it has identified how this could be achieved, and all without changing the infrastructure at the customer’s premises.
The solution, it believes, could build on work it is already having to do to meet the obligations of new European requirements, Project TERRE (Trans European Replacement Reserves Exchange). Coming into force despite Brexit, in December 2019, it requires that market arrangements are opened up to a larger number of participants.
“Under TERRE, we need to have the enabling systems available so smaller generators can offer their services into the balancing mechanism, and these systems could be extended to accommodate the sort of activity that we describe in the white paper.
“As TERRE was so imminent, we’d faced a choice – do we build it effectively on the old systems, or do we use that money to build it on new systems. It made sense to choose to do it on new systems, and to avoid paying for changes twice.
“With these new agile, flexible, digitalised platforms we can accommodate more services as the market develops and as our users requirements change.”
And the plans would be “scaleable”, he says, as no-one has a crystal ball to see exactly what changes and developments will lie ahead in the long term. “We don’t have numbers – but we do know that there are businesses out there that aim to have this as their model.”
The bigger picture
But as well as providing these mechanisms, the CEO would like to see all the central code bodies and processes streamlined, pointing to Elexon’s strategy to “simplify and consolidate complex and fragmented services” for the benefit of the industry.
“I think industry rightly feels already challenged by the amount of change that it’s facing. Having said that, I’ve got every confidence that collectively we can find the solutions.
And ‘collectively’ is important. We believe the central market services arena that Elexon and other code bodies occupy is far too fragmented.
“There are 11 codes and nine code bodies in the energy and gas sector. As we are created by industry, for industry, we look at those fragmented arrangements and we see a benefit in greater collaboration – consolidation even – between those organisations.”
Bygraves says it was therefore “surprising” to find another code being created, the Retail Energy Code, which will also require its own administrator. Part of an Ofgem-led programme to enable faster switching, it will subsume other retail codes over the course of time.
Elexon intends to participate in the process to appoint the administrator for this code and claims it has received unanimous support from the industry to be part of that process. And it will propose providing those services on a not-for-profit basis, as with the BSC. That, he says, is quite important, as there is a frustration amongst some in industry that providers of central monopoly services should not be making a margin out of such services.
“If we were to take this on we would apply the same high standards of service as for the BSC plus there would be synergies, all of which, in my view, would be beneficial to industry users.
We’ve certainly had a lot of positive feedback. But I accept that allowing us to participate is not the same as saying we want you to win.”
Elexon will be talking about these initiatives at its annual meeting on 12 July. Key speakers include Victoria McGregor of Citizens Advice, Lord Hutton, chair of Energy UK and Dan Monzani of BEIS.
Playing in the sandbox
A key move by Elexon to encourage new market business models is the introduction of its BSC ‘sandbox’, aimed at allowing entrants to benefit from a derogation from some of the BSC obligations for a limited time to trial how ideas work in the real world.
It’s something Bygraves and his team are particularly happy with. “Like any new idea you want to try it in reality, not just the theoretical. We’ve been working closely with Ofgem and their Innovation Link team and I’m delighted that we were the first code body to introduce its own sandbox.
We proposed the change earlier this year and assuming Ofgem approves it, it should become effective soon. It also ensures coordination between us and Ofgem, meaning ideas aren’t being pushed from pillar to post.”
Interest, he says, has been high. “The sandbox is the logical next step, going beyond the discussions and allowing innovators to play in the real world. We’ve had approaches from new business models but also existing suppliers who want to play in this space, as innovation is taking place by those throughout the industry, including the larger incumbents.”
Adapting to consumption
In order for new services, such as time-of-use tariffs and battery storage, and even electric vehicle (EV) charging, to be successful, different arrangements will also be needed at the half-hourly level to ensure appropriate pricing signals.
Whilst the rollout of smart meters helps, you need to do something with that more granular data, says Bygraves, which is where Elexon has been leading on the design of the operating model for market-wide half-hourly settlement.
“We are very proud that Ofgem asked us to lead on that piece of work. The workgroup has now produced five potential operating models for market-wide half-hourly settlement and a consultation is under way.
“It’s important to get the design of those half-hourly settlement arrangements correct. Some outside industry may believe that once we’ve got a half-hourly meter on the wall, job done.
“That’s not the case. It’s what you then do with half-hourly data and how that is accommodated within market arrangements and systems that is important, because that will then enable, or not, these new services.
It’s important and can be done in a number of ways, which is why there are the five different models we are consulting on at the moment.
“There are many silos of data in this sector and what we would wish to see is that data become more readily accessible, subject to the right protocols.”