Policy background Half-hourly settlement
In Great Britain electricity is traded in a wholesale market, with generators and suppliers entering into contracts with each other for every half-hour of every day. Electricity suppliers are required to buy enough energy to meet their consumers’ needs in each half-hour period, and ‘settlement’ is the process for determining, after the event, whether what they bought matched what their customers consumed. Any shortfall or excess is charged or refunded to the supplier accordingly.
	However the majority of domestic and smaller non-domestic consumers currently do not have meters capable of recording their consumption by half-hour period – the total amount of energy consumed is recorded, but the timing of when it is consumed is not recorded. For these consumers their half-hourly consumption is based on an estimate according to a profile of the average consumer.
	Smart meters can record the amount of energy consumed or exported within every half-hour period and provide this data to energy suppliers remotely. The roll-out of smart meters to domestic and smaller non-domestic consumers therefore presents an opportunity to improve the accuracy and timeliness of the electricity settlement process, as they enable information about customers’ actual consumption of electricity on a half-hourly basis to be used in settlement. As the actual cost of generating and transporting electricity varies throughout the day (for example, at times of peak demand the average cost of electricity generation tends to be higher than at off-peak periods), half-hourly settlement is expected to provide commercial incentives on energy suppliers to encourage their customers to change when they consume energy (e.g. through time of use tariffs). This can help reduce the costs of the future energy system and so the costs for consumers. It will also make the energy system more resilient as we move towards an increasingly low carbon generation mix, and assist distribution networks in managing the additional load resulting from the take-up of electric vehicles and potentially the electrification of heat. Half-hourly settlement is a central aspect of the Government’s Smart Systems & Flexibility Plan that was published in July 2017 (https://www.gov.uk/government/publications/upgrading-our-energy-system-smart-systems-and-flexibility-plan).
	Ofgem launched a Significant Code Review on market-wide half-hourly settlement in July 2017 (https://www.ofgem.gov.uk/system/files/docs/2017/07/electricity_settlement_reform_significant_code_review_launch_statement.pdf. They have committed to take a decision on if, when and how to implement market-wide half-hourly settlement by the second half of 2019. The powers in the Act allow Ofgem to deliver market-wide half-hourly settlement more swiftly and smoothly, without them having to rely on industry code processes to the same extent. This will help ensure that the benefits to consumers of new tariffs, products and services enabled by smart metering and half-hourly settlement will become available sooner.