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The shifting sands of settlement

Tom Faulkner Analyst

Ofgem issued its draft impact assessment and consultation on Market-wide Half Hourly Settlement (MHHS) on 30 April. The MHHS significant code review (SCR), which has been running since July 2017, aims to utilise the smart meter rollout and reform the electricity settlement arrangements, which are used to reconcile the difference between how much energy a supplier purchases and how much energy their customers consume. The SCR looks to ensure that the majority of meters are settled using actual half-hourly readings, rather than the current process of using profile data to estimate consumption patterns which is undertaken for the vast majority of domestic customers. Ofgem’s preference is to introduce MHHS over a four-year period, starting in 2021. The regulator has released its proposals in spite of the COVID-19 situation, but has confirmed that its preferred timescales could change as a result of the pandemic. Settling the whole market on a half-hourly basis will expose suppliers to the true cost of how much energy their customers use every half an hour, providing an incentive for the introduction of smart tariffs, which should provide price signals to customers to adapt their energy usage. Ofgem’s research has shown that in the 20 years after MHHS is implemented, the percentage of consumers on smart tariffs could triple, and the percentage of system peak demand shifted by those on smart tariffs could increase by five times (Figure 1). While this consumer flexibility will provide challenges for both suppliers and the Electricity System Operator (ESO), it is a ...

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