Customers, Policy & regulation

Model to make smarter settlement mandatory for domestic customers pushed back to 2019

Ofgem has pushed back its deadline for delivering a final decision on “if, when, and how” to implement mandatory half hourly settlement (HHS) for domestic and small non-domestic energy customers until the second half of 2019.

The regulator had previously planned to set out its methodology for mandatory HHS in the domestic sphere by the first half of 2018, but in a letter published today, the regulator’s partner for energy systems Cathryn Scott explained that industry warned Ofgem off this commitment during a consultation late last year.

“Respondents [to the November 2016 consultation] were concerned with this timetable,” wrote Scott. “They said it would be challenging to run (and then implement) several large change projects concurrently alongside business as usual, and highlighted the resource constraints this imposes on industry.

“They also stressed the need to learn from delivering other large change projects, such as Project Nexus, in setting a realistic timetable that can be adhered to”.

Respondents also suggested that Ofgem’s plans for mandatory domestic HHS should take into account learnings from the use of P272 as a code modification methodology in the introduction of mandatory HHS for medium and large businesses – this process was completed in April this year.

Taking this industry advice into account, Ofgem has adjusted its timetable for mandatory domestic HHS. By the second half of 2019, it commits to having a full business case ready for the change to the settlement code as well as a finalised “target operating model” in place. A draft business case will be put forward in mid-2018.

Ofgem has already taken steps to allow elective HHS for domestic energy consumers and Scott said this was “an important first step to encourage a market-led approach to HHS, facilitating innovation by early movers and providing real-world experience to inform further work”.

She added however that regulator does expect that it will “need to mandate all suppliers to settle their customers on a half-hourly basis to realise the full benefits by exposing suppliers to the true cost of supplying their customers in every half-hour period”.

The regulator considers HHS to be essential to the delivery of a smarter energy system. It expects HHS to: “promote innovation and competition in the energy market and give consumers the opportunity to make savings on their energy bills; help create the right environment for more demand-side response, leading to a more efficient and secure energy system; help suppliers forecast demand more accurately, strengthening competition and reducing costs; and make the settlement process faster and more efficient, reducing barriers to entry to the energy market”.

In addition to setting out its timetable and suggested process for mandatory domestic HHS, Scott’s letter called for applications from industry representatives to join the design working group which will set the governance structure for decision making on this project.

Applications must be submitted by 1 September.

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