While larger UK businesses are being moved to half hourly settlement for their electricity use, it is likely that all firms will soon follow, according to recommendations published today by the competition watchdog.
The Competition & Markets Authority (CMA) has told Decc and Ofgem to improve settlement rules and procedures for both gas and electricity.
The outcome should be more accurate bills for more business and the ability to pay less for energy by using it outside of peak times.
Currently, most businesses are settled according to a profile class for electricity, rather than their actual consumption. That reduces incentives on suppliers to innovate and means businesses are not always paying reflective prices for their power use. By moving to half hourly metering and settlement, businesses will face more reflective time-of use charges for power. That is, expensive power in the morning and evening peak periods, but cheaper during the late morning and mid-afternoon and very cheap overnight.
Moving to half hourly metering and settlement effectively opens the door to smart metering and time of use tariffs in the business sector for power. Firms will either win or lose financially because they will be exposed to much sharper price signals.
Gas settlement has other issues, but essentially the CMA is concerned that inefficient allocation of costs leads to gas firms ‘gaming’ the system and businesses paying more than they need to as a result. The CMA said it wants to see Ofgem’s reforms of gas settlement implemented by October this year and additional security measures developed as soon as possible.
For electricity settlement, the CMA recommended Decc consult on changing rules so that suppliers can collect more granular data and that Ofgem conducts a full cost-benefit analysis for mandatory half-hourly settlement while considering how to make elective half-hourly settlement less expensive.
Regulator and government must then set out a joint plan on timescale and responsibilities for implementing half hourly settlement, said the CMA.
Meanwhile, the CMA has also outlined plans to stop small businesses being overcharged and locked into poor-value contracts. Read about those proposals here.