Settlement Reform: Market-wide Half-Hourly Settlement (MHHS)

Introduction

Settlement—the process of reconciling how much electricity was generated, consumed, and traded—is the financial backbone of the GB electricity market. For decades, most domestic and small business customers have been settled on estimated, profile-based consumption, masking the true value of flexibility and distorting market signals. Market-wide Half-Hourly Settlement (MHHS) is set to change that, unlocking a smarter, more flexible, and efficient energy system. In this article, I’ll explain what MHHS is, why it matters, how it’s being delivered, and what it means for market participants and consumers.

The Legacy Settlement System

Profile Classes and Non-Half-Hourly Settlement

Historically, only large industrial and commercial (I&C) customers were settled on actual half-hourly (HH) meter readings. The vast majority of domestic and small business customers were assigned to “profile classes,” with their usage estimated based on average patterns and settled on a non-half-hourly (NHH) basis.

Profile Classes: Eight standard classes, each with a typical load shape (e.g., domestic unrestricted, economy 7, small business).
Limitations: This approach ignored real-time consumption, discouraged flexibility, and created inefficiencies in balancing and settlement.

The P272 Reform

The P272 modification (implemented in 2017) was a first step, mandating HH settlement for larger non-domestic customers (profile classes 5–8). This paved the way for wider reform.

What is Market-wide Half-Hourly Settlement (MHHS)?

MHHS is the transition to settling all customers—domestic and non-domestic—on actual half-hourly consumption data, enabled by smart meters. This reform is being led by Ofgem, Elexon, and industry stakeholders.

Key Objectives

Unlock Flexibility: Enable time-of-use tariffs, demand-side response, and smart charging by reflecting the true value of when energy is used.
Improve Accuracy: Reduce reliance on estimates and improve the accuracy of settlement, billing, and system balancing.
Support Decarbonisation: Facilitate the integration of renewables and flexible technologies by sending better price signals.

For more, see Ofgem: MHHS Programme.

How Will MHHS Work?

Data Collection and Processing

Smart Meters: Provide half-hourly consumption data for each customer, subject to privacy preferences.
Data Communications Company (DCC): Securely transmits data from meters to suppliers and settlement systems.
Data Privacy: Customers can opt out of half-hourly data sharing, but most are expected to participate as benefits become clearer.

Settlement Process

Elexon’s Role: As the Balancing and Settlement Code (BSC) administrator, Elexon is leading the design and implementation of new settlement processes (Elexon: MHHS).
Market Timelines: Settlement will be based on actual HH data, with faster and more accurate reconciliation of trades and imbalances.

Industry Code Changes

BSC Modifications: Significant changes to the BSC and related codes are required to support MHHS, including new data flows, validation, and reporting requirements.
Testing and Migration: Industry-wide testing and a phased migration plan are in place to ensure a smooth transition.

Benefits of MHHS

For Consumers

Innovative Tariffs: Time-of-use, dynamic, and real-time tariffs become possible, rewarding flexible consumption.
Empowerment: Consumers can make informed choices about when to use energy, potentially saving money and reducing carbon footprints.

For Suppliers and Aggregators

Accurate Settlement: Suppliers are settled based on actual customer usage, reducing imbalance risk and enabling new business models.
Flexibility Services: Aggregators can offer demand-side response and other services with confidence in settlement and revenue streams.

For the System

Efficient Balancing: The ESO can balance the system more efficiently, reducing costs and supporting higher renewables penetration.
Decarbonisation: Better price signals encourage consumption when renewable generation is abundant, reducing curtailment and emissions.

Challenges and Risks

Data Privacy and Security

Ensuring robust data protection and giving consumers control over their data is paramount. The Smart Energy Code (SEC) governs data access and privacy.

Industry Readiness

System Upgrades: Suppliers, DNOs, and central bodies must upgrade IT systems and processes.
Change Management: Training, communication, and support are needed across the industry.

Consumer Engagement

Awareness: Many consumers are unaware of settlement reform and its benefits.
Trust: Building trust in smart meters and data sharing is essential for widespread participation.

Case Study: Octopus Energy and Agile Tariffs

Octopus Energy’s “Agile” tariff, enabled by half-hourly settlement and smart meters, offers real-time pricing linked to wholesale market rates. Customers can shift usage to cheaper periods, demonstrating the potential of MHHS to drive innovation and consumer value (Octopus Energy: Agile Tariff).

The Roadmap to Implementation

Ofgem’s Timeline

2022–2023: Detailed design, code modifications, and system development.
2024–2025: Industry testing, migration, and go-live for all suppliers and customers.

For the latest updates, see Ofgem: MHHS Programme.

Lessons Learned

Smart Metering is Foundational: MHHS depends on the successful rollout and operation of smart meters.
Collaboration is Key: Industry-wide cooperation is essential for a smooth transition.
Flexibility is the Future: Settlement reform is a critical enabler of a flexible, decarbonised energy system.

Conclusion

Market-wide Half-Hourly Settlement is a transformative reform for the GB electricity market. By aligning settlement with actual consumption, MHHS will unlock flexibility, support innovation, and accelerate the transition to net zero. The journey will require technical, regulatory, and cultural change—but the benefits for consumers, suppliers, and the system are profound.

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