The energy system starts with its end user, and the constant demand for power. Usage changes throughout the day, influenced by weather patterns and national events. Consumers decide how much power utilities need at any given time, while utilities do their best to predict and manage the changes.
At the other end, power plant operators will plan their activities to find a good price for whatever watts they can make. Fuel supplies, maintenance operations, and spin-up time help decide the value of a watt. As the energy transition progresses, the influence of the weather keeps growing.
Above all, a watt in the wrong place can cause more harm than help. Matching the two ends of the power system is vital to prevent blackouts, power surges, or damage to key infrastructure.
Between generators and consumers, a whole range of entities then buy and sell power. Banks and wholesalers trade energy for a profit. Pumped and battery storage stations use periods of low demand to top up their supplies and resell them later. Transmission system operators negotiate with generators to better balance the geography of the energy system.
At all times, values traded on paper must match the real flow of electricity. For this reason, power balancers monitor plant outputs to verify that power distribution has worked as planned. On the island of Great Britain, this balancing act comes from not-for-profit entity Elexon, which has matched supply and consumption, every hour, on the hour, for more than 20 years. Now, times are changing.
What will market-wide half-hourly energy settlement do to the British power system?
A government campaign to install digital energy meters has enabled significant change in the British system. In April 2017, Elexon started settling the electricity use of larger businesses every half hour.
Now most British homes use digital “smart meters” to record power use, authorities have the opportunity to double their measurements of the domestic market without doubling their work. In April 2021, regulator Ofgem decided to transition to market-wide half-hourly settlement (MHHS).
Elexon’s MHHS programme director Justin Andrews told us: “MHHS will be one of the biggest overhauls for Britain’s electricity system since privatisation, and there are significant benefits to customers, suppliers, generators and other energy companies. MHHS is another big step towards a smarter system in Britain, and it helps progress to net-zero.”
An statement from UK government energy regulator Ofgem said: “We estimate that our chosen option for MHHS will deliver net benefits to energy consumers in Great Britain in the range of £1.6bn-£4.5bn over the period 2021-2045. It will also deliver benefits that we expect to see but cannot quantify, notably increased competition amongst retailers and innovation in new products and services.”
Ofgem appointed Elexon as owner of the MHHS project in January 2021. This puts the regulator in charge of developing, testing, and integrating the new system for approximately 180 organisations across the sector.
What are the advantages of market-wide half-hourly energy settlement?
Finer control of energy trading volumes would allow market prices to change more rapidly and reactively. Power draws or surpluses would have a greater effect on pricing, strengthening market forces on customers and suppliers.
Regulators believe that, in turn, this would encourage power-intensive users to cut down on their consumption. Alternatively, users could shift their consumption to times of greater availability, flattening out the peaks and valleys of demand. Ultimately, regulators hope that MHHS can take some of the burden of balancing directly to consumers.
The authorities regulating the British power system believe this reform of the energy market will make a more efficient and environmentally-friendly power system. Part of this will come through adaptive, ‘time-of-use’ tariffs, enabling suppliers to change tariffs more easily and specifically.
Andrews explains: “Until now, one of the traditional ways to manage sudden increases in demand has been to call on fossil-fuelled power plants that can respond quickly to provide extra power.
“In the future, more consumers will be encouraged to respond to periods of rising demand with more immediate tariff adjustments through MHHS. Power consumers will be able to respond to fluctuating electricity prices through having their own small-scale low carbon generation, energy storage, and electric vehicles. This will result in surplus electricity being available to the system at certain times, or lower demand from consumers during peak hours.
“Because of this, there may be less need to call on plants during peak times for them to manage supply and demand bottlenecks. We may also need less new network capacity if more demand-side response is being provided, which protects the environment as fewer new pylons would need to be built.”
“Deployment of new tariffs should protect vulnerable consumers”
Some utilities already offer half-hourly time-of-use tariffs to domestic consumers with smart meters. In December 2019, some utilities paid domestic consumers on adaptable ‘time-of-use’ tariffs to absorb an excess of wind energy. However, this is an infrequent event and such tariffs are currently not economical for many.
A document from 2017 by charities organisation Citizens Advice suggests that: “Younger & better off people show more preference for time of use tariffs. Vulnerable consumers may not choose time-of-use tariffs, or be able to purchase automated electrical equipment to reduce their bills. Development of the tariffs should include explicit protection for vulnerable consumers to ensure they are not worse off than they currently are under flat tariff structures.”
The UK Government’s implementation of these tariffs will affect their adoption rates and how they affect power use.
A report states: “Some regions of the world are transitioning to domestic time-of-use tariff deployments on an opt-out basis. […] One field trial found that peak demand reductions from the average customer in an opt-out offering were 40%-50% lower than in an equivalent opt-in offering.”
At the same time, the organisation “identified a significant amount of general customer interest in time-of-use tariffs”.
An Ofgem statement reads: “Based on the evidence we have received, it is clear that relying solely on the elective half-hourly settlement arrangements will deliver insufficient load shifting to produce the scale of system-level benefits we seek. Introducing MHHS is essential to secure the necessary transformation.”
Market-wide switch expected to benefit existing half-hourly customers
While many companies have used half-hourly tariffs for their energy since 2017, Andrews says that the switchover would still benefit them.
He continues: “Currently, the process to settle each half hour period of the electricity day takes 14 months, mainly because actual meter readings must be submitted to make the calculations. Although around 40% of homes and small businesses have smart meters that can send readings remotely, the remaining meters have to be physically read.
“Moving to MHHS, combined with the continued roll out of smart meters, will reduce the settlement process to just four months. It will make settlement more accurate as smart meters automatically send readings to suppliers, also reducing the costs of getting meters read.”
Most costs for the switch will fall on industry participants as they change their workflows, machinery and software to handle the change.
The transition will take until October 2025, allowing power trading companies to upgrade their systems for more frequent operations. Could this eventually mean that Britain catches up with other power markets and moves to trading even more frequently?
Andrews says: “The energy system is evolving rapidly, and in an unpredictable way. Because of this, it would be impossible to fully future proof any energy system.
“Encouraging and supporting innovation in the sector is vital to helping companies stay ahead of the curve. MHHS, together with other changes that Elexon, Ofgem, and other organisations have made to the rules governing the system, allow scope for ideas to be brought to market. In 2020, Ofgem granted an exemption from European rules requiring 15 minute settlement by 1 January 2021.
“We are currently replacing the central systems that manage settlement with a new flexible cloud-based platform. Once this is complete, the platform will be scalable to accommodate 15 minute settlement at a later date if it was required. We have also designed the MHHS target operating market to be flexible enough for different settlement periods in future if needed.”