Ofgem boss flags rule changes to speed demand response

Ofgem boss Dermot Nolan says regulatory change is coming.
Ofgem boss Dermot Nolan says regulatory change is coming.

Ofgem boss Dermot Nolan has hinted at “radical” reform to speed the uptake of services such as demand response aggregation.

Perhaps he should revisit half hourly metering and P272.

Speaking at the Energy UK conference this week, Nolan reiterated complaints from start-ups and independent energy services firms that the current market set up stifled innovation and favoured incumbent energy companies.

Ofgem began consulting in February on how to better regulate an energy market moving away from centralisation. But resistance to change by incumbents that help create and modify industry rules arguably lies at the heart of most barriers to entry and innovation.

Nolan said that Ofgem was “acting to streamline the code governance process” and has “been talking to the CMA about the potential for more radical institutional reform”.

Ofgem, he claimed, “will let companies innovate and provide new services which are in the interests of consumers and which will make the system work better”. The regulator would “intervene where necessary”, he said.

Cometh the half hour

If the regulator is to make good on its promise, one of the key elements to tackle is half hourly settlement.

Currently only around 100,000 of the largest organisations are half hourly settled. The rest of the UK is settled against a typical profile with charges smeared across all users.

Ofgem had mandated half hourly settlement for larger classes of customers under P272 with a hard deadline of April 2016.

However, that stance crumbled earlier this year when suppliers said they were not ready to make costly wholesale changes. Were they forced to do so, customers may be told that Ofgem was the reason their bills were increasing, according to Tempus Energy boss Sara Bell.

Tempus is both an energy supplier and aggregator of demand response services and Bell is part of the half hourly settlement expert group for smaller profiles.

Bell believes that the softening on P272 is a missed opportunity as half hourly settlement is key to scaling demand response participation.

“We didn’t cancel the April 2016 date because of customers, we cancelled it because of pressure from the big six on Ofgem,” she claimed.

“It is hard for Ofgem to be courageous in that situation,” said Bell. “But half hourly settlement is the most important thing.

“At the moment, only half hourly settled [companies] can do Triad avoidance or can reduce their distribution network charges by changing their consumption [patterns],” she added.

“As soon as you force half-hourly settlement on the market, a demand aggregator can go to all of those customers and manage their network costs and move them away from expensive [peak] periods. That is going to be a worthwhile service.

“As soon as you do half-hourly settlement you unlock the market.”

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