Following Ofgem’s proposal around impact assessment and consultation into the Market Wide Half Hourly Settlement (MWHHS) across the power retail market last year, the regulator has formally approved its plan. The outlined project will introduce far-reaching shifts to allow a more flexible energy system. In practice, the new meter readings will empower energy suppliers to deliver more innovative services and products as well as enable better use of energy, including Time of Use tariffs (ToU), wider electric vehicle (EV) adoption using the grid, as well as greater battery storage capabilities.
Moreover, through implementing MWHHS, net benefits for consumers is predicted to reach between £1.607 billion - £4.557 billion. In light of these inevitable regulatory changes, how can energy suppliers future-proof their organisations?
Transforming the energy market
Currently the use of electricity is often estimated according to the average usage and a company’s weekly or monthly meter reads. However, this way of charging customers against imprecise numbers is not only inaccurate but also generates avoidable costs from a business’ perspective.
In fact, it was reported in November that many businesses operating within hospitality and financial services including restaurants, shops and banks, could be paying much lower bills if they used data collected every 30 minutes. Half hourly records would provide better visibility and understanding of increased usage times, lower consumption period and potential opportunities to cut costs. However, what is necessary to enable a real shift in energy readings is a widespread roll out of smart meters.
As explained by Ofgem, smart meters can register the amount of energy used within every half hour of the day. This data-led solution allows suppliers to charge customers more accurately and bridge the financial gaps created by average usage data. Instead of getting a meter read every six months, organisations and individual users could know exactly how much energy is consumed within shorter periods of time.
Aside from half-hourly meter records, smart solutions are expected to spark a chain of other beneficial changes in the energy industry including distributed generation, electric vehicles and faster switching, allowing easier and more flexible moves to another energy supplier. Indeed, fast switching without smart meters would be impossible as there would be no guarantee of getting a read the same day, let alone the same hour.
For suppliers, smart meters also mean that bills will be accurate so debt levels for disputed balances should be lower. It also opens the door to innovative time of use tariffs that can be used to attract new customers. The alerts that the smart meters send are used by network operators to identify issues with supply and can be used by suppliers to identify vulnerable customers who are off supply. There are also tamper alerts to help suppliers identify energy theft.
More and more consumers are conscious of the energy they use and where it comes from, smart meters will allow for data to become the centre of this consciousness and innovation will thrive as homes become smarter.
Smart data collection
Although smart metering and the Half-hourly (HH) Settlement proposed by Ofgem have the potential to redefine the energy industry, they come at a cost. These innovations will bring a completely new data set, and from a metering point of view it will be at a much more granular level than energy suppliers might be used to. The smart energy code also requires suppliers to gain consent from their customers before reading their meter more than monthly.
Furthermore, HH Settlement will result in suppliers being settled against actual usage, rather than industry curves. Whilst the common industry classification gives an overview of an average expected consumption for domestic and SME customers, it is highly probable that many suppliers will deal with customers whose energy usage differs from the standard categories, including healthcare and emergency services workers as well as staff working shift hours.
It creates an opportunity for suppliers with a large proportion of smart meters to take advantage of the benefits of HH Settlement, before mandatory Ofgem reforms come into force. For instance, through use of timely and precise consumption profiling, suppliers can identify and cater to those customers furthest away from the industry curves.
However, given the addition of a new data source, and the step change in granularity, all suppliers need to consider how their existing systems are equipped to cope. It is vital for providers to be able to carry out profiling and identification of customers in order to meet the HH Settlement’s requirements. Having an integrated solution is necessary to handle the smart meter rollout, and the amounts of data that comes with it.
It is clear that this abrupt change to the traditional system might bring challenges for energy suppliers on older tech stacks, who may have large numbers of ‘dormant’ customers, who haven’t engaged with the supplier for many years. On the other hand, tech-led approaches and the ability to easily bill and settle half-hourly for domestic and SME customers will empower energy providers to offer more competitive products and services – accelerating the digital energy transition.