BSC modification P415: what Ofgem's decision means for the UK flexibility market

Amp X' Head of External & Regulatory Affairs, John Prime , breaks it down for us.

A recent study by Cornwall Insight for Smart GB found that increasing the amount of flexible capacity – EVs, storage, etc. – in the electricity market could save ￡4.6bn in wholesale and energy system costs by 2030, and ￡14.1bn by 2040.

Ofgem, the regulator for electricity and gas in Great Britain, has stated that it sees a major role for flexibility from smaller assets in homes and businesses in delivering the net zero transition, and has recently conducted a consultation into how to unlock large scale consumer participation. The Department for Energy Security and Net Zero (DESNZ) ran a Call for Evidence over the summer seeking views on how to spur a “step change in innovation” to open up incentives and opportunities for consumer participation in markets.

It's great news, therefore, that BSC modification P415, amending the Balancing & Settlement Code, was approved last week by Ofgem (and rather surprising that it took so long given the potential benefits). This decision will allow “Virtual Lead Parties (VLPs) to participate in the GB wholesale market”, partnering with consumers to aggregate together all the latent flexibility in the timing of the use of appliances and assets and trading it into wholesale markets, opening up new business models and sources of revenue for market participants.

Although this is a major step towards unlocking consumer participation, it is by no means the end of the journey. In order to attract consumers, the proposition will need to be compelling, transparent and consumer-centric.?

However, “step change in innovation”, “compelling”, “transparent”, and “consumer-centric” are not phrases usually associated with the GB electricity retail market. While there are a number of innovative demand-side aggregators who could enable this kind of market participation, there are high barriers to market entry – not least the supplier hub model which allows retailers to guard their customer perimeter possessively, instead of making space for smaller market participants.??

Very few retailers will have the capability or the inclination to develop a VLP-type offering in-house in order to try and win new customers. In a low-margin business like energy retail, the way suppliers increase their revenues is by selling more kWh, not by spending time and resource to help customers determine the best time to use those kWh. Over recent months, the main way in which retailers have gained market share has been through the Supplier-of-Last-Resort process – picking up en-bloc the customers of other suppliers who have gone out of business.?The tariff cap has meant that there has been very little competition on price and comparison websites have largely stopped operating.??

Between November 2015 and November 2021, an average of 439,194 monthly customer switches was recorded; between November 2021 and June 2023, the average monthly figure was only 93,850.? This isn’t the kind of competitive, active marketplace which will drive retailers to make a step change in innovation and customer service in order to remain profitable – it’s easier simply to cut costs by, for example, reducing standards of customer service without worrying about customers switching away.

The more varied and innovative the range of customer offerings in the market, the easier it is for suppliers to differentiate themselves from the competition on something other than price. And if internal concerns regarding budgets for innovation are a concern, then there are alternatives, such as partnering with an innovative organisation whose technology and customer offerings create synergies and services which could not be so readily developed organically in-house.

Amp X’s partnership with Plico , a key clean energy player in the Western Australia Electricity Market, has led to outstanding results. Through our Asset Management Platform (AMP), we've provided a comprehensive solution for data visualisation, asset control, and proactive alerting. It enabled real-time monitoring and control capabilities participation in the Western Australia Supplementary Reserve Capacity Mechanism and yielded significant outcomes, such as the delivery of personalised and proactive services on consumers’ energy usage, enabled by enhanced analytics and insights of the AMP.

Dynamic Load Shaping is one of the services which we would like to see become more widespread in the UK as a result of developments such as the P415 decision, the Department for Energy Security and Net Zero 's Review of Electricity Market Arrangements (REMA), and Ofgem ’s review of domestic consumer flexibility. There is a compelling case for change in wholesale, balancing and retail electricity markets in Great Britain, and a great opportunity to regain global leadership in market design and the underpinning technologies to deliver it.