Settlement Reform George Huang, Senior Policy Manager, 30 November - PowerPoint PPT Presentation

Update on Market-Wide Settlement Reform George Huang, Senior Policy Manager, 30 November 2017

What we’ll cover Agenda • Introduction to Half-Hourly Settlement • Project overview – including benefits and a snapshot of where we are • Business Case overview • Target Operating Model overview • Consumers and Policy overview • How to get in touch with the HHS project team 2

What is half-hourly settlement? Standard Domestic Profile Non Half Hourly Average domestic Settlement: Consumption consumer Customers consumption pattern Settled Using = assumed profile Profiles 00 06 12 18 24 Actual Consumption: low peak electricity Flat Consumption consumption means Half Hourly cheaper customer to Settlement: serve Customers settled 00 06 12 18 24 based on their Actual consumption: High actual High peak peak consumption consumption means Consumption patterns more expensive customer to serve 00 06 12 18 24 3

Realising the benefits of HHS Certain to occur Likely to occur Outcome Output Long term Medium term Short term 4 3

Project Overview Medium and large business users Half-hourly settlement (HHS) for Profile Classes 5-8 by 01 April 2017 through P272. Elective We have removed barriers to make half-hourly settlement for smaller domestic and non- domestic customers cost-effective on an elective basis. Market-wide Significant Code Review We expect that we will need to mandate MHHS to realise the full benefits. We’re working in three areas: 1. Business Case – building the case for if, how and when to implement market-wide HHS, including an economic assessment of the costs and benefits. 2. Target Operating Model (TOM) design – technical design 3. Policy development – data privacy, whether or not to centralise data collection/aggregation, consumer issues A decision will be made by Ofgem on if, how and when to implement MHHS in the second half of 2019. 5

Project Update July 2017 Winter 2019 Outline Strategic Project 1 st TOM Decision SCR launch RFI - Business Voluntary RFI – 1 st TOM Business Case Business Case objectives and Design on MHHS (24 July) case and data access to data Design Skeleton (Summer 18) (Winter collection/ assessment Working (October) (Winter Advisory TOMs 17/18) options Group 2019) aggregation Board finalised published (11 Oct) (21 Aug) (14 Nov) (Spring 18) (12 Sept) 6

Business case We are following HM Treasury best practice guidance to develop a Business Case based on the 5 Case Model methodology. This will include an economic impact assessment (the Economic Case). 2 nd half 2019 Winter 2017/18 Mid-2018 Strategic Outline Outline Business Full Business Case Case Case • Detailed costing of • Sets out the strategic • High level economic specific options case for change assessment to set out • Relies on Target • An initial outline of the preferred way forward Operating Model work scope of economic costs • Developed thinking on and policy decisions and benefits commercial, financial • Set out plans to manage • Initial thoughts on the and management cases and deliver reform and other three cases the transition to market-wide HHS See: https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/469317/green_book_guidance_public_sector _business_cases_2015_update.pdf 7

Target Operating Model • The Target Operating Model (TOM) sets out the transitional and enduring settlement arrangements which will deliver MHHS. • We want to ensure to the TOM is future-enabling and does not impede new technologies and business models. For example  Electric vehicles  Demand-side response (local and wholesale)  Peer to peer trading • Design of the TOM is being undertaken by an ELEXON led industry working group that will provide design options to Ofgem • Ofgem will make the decisions on TOM options, with advice from an external Design Advisory Board, consisting of members from industry, innovation, academic and consumer backgrounds 8

Policy and Consumer Questions Ofgem is leading on consideration and decision making on the following policy and consumer questions separately from the Target Operating Model development: Approach on whether or not to centralise functions currently performed by supplier agents Approach to access to data for settlement • Access to half hourly data from smart meters is currently on an opt-in basis • Gathering evidence on full range of approaches The potential impacts on consumers of mandatory HHS and whether any additional protections will be needed as result (including microbusiness consumers) 9

How to get in touch If you would like to find out more or be notified of future updates, please go to the HHS website: https://www.ofgem.gov.uk/electricity/retail- market/market-review-and-reform/smarter-markets- programme/electricity-settlement Any questions, please email: halfhourlysettlement@ofgem.gov.uk 10