Mark Bygraves - Chief Executive Officer

Mark Bygraves
Chief Executive Officer

2020 was been one of the most challenging years that the energy sector and the wider economy have ever faced. Despite these difficult days, our industry continues to rapidly evolve, experiencing its longest ever period for coal-free electricity generation of 67 days, almost quadrupling the previous record from May 2019.

However, Elexon’s key priority has not changed. As trusted independent experts, we must carry on delivering our Balancing and Settlement Code (BSC) ‘end-to-end’ management services to our historic high standards, whilst always providing value for money. Our 2020 customer survey highlighted increased satisfaction with our adaptability, and the reliability of our services and we will strive to build on these to aid our customers.

To achieve these priorities it is essential we maintain our high levels of customer focus, invest in our systems and processes and ensure we retain and attract the necessary talent and skills. This 2021/2022 business plan details how we will work with our stakeholders to deliver on our priorities and act with the industry to facilitate a low carbon future.

Supporting progress to net zero is of utmost importance to us. We have reflected this when developing a new corporate purpose: ‘Serving at the heart of the energy industry, building a path to net zero’. You will find many examples in the business plan of how we are enabling innovation for the benefit of consumers and facilitating the changes needed to support the energy transition. We continue to make the case for consolidation and simplification of energy codes and the central market landscape to help deliver the transition.

The 2021/22 budget is broken down later in this business plan. As we always do, we have taken a prudent view of what we need to run the business and invest in necessary systems upgrades. However this year our focus is evermore acute, as we fully recognise the pressures faced by our customers.

In 2020/21 we served more BSC Parties, progressed more Modifications and Workgroup meetings, delivered significant changes to systems and concluded a complete review of our Performance Assurance regime. All the indications show this increasing demand for our services will continue into 2021/22. However, despite this, after taking into account indexation and inflation, our regular activity shows a decrease of £0.4m (1.0%) against the 2020/21 budget, and with our headcount almost unchanged.

Our existing systems rely on ageing architecture that has been in place for many years. The industry has benefitted from our approach to prolong the life of those assets for as long as possible. However, in the face of the enormous volume and complexity of change that is increasingly required, it is not sustainable or wise to sweat the use of them for much longer into the future. That is why we embarked on our investment programme two years ago.

There is a window of opportunity in 2021/22 for us to continue the investment necessary to deliver our new digital plaform ‘Elexon Kinnect’. This will reduce the risk of performance of the existing systems deteriorating and being unable to adapt to meet future challenges, which could impact on Settlement accuracy and stability. It will also pave the way for future market changes such as Market-wide Half Hourly Settlement (MHH Settlement). This is leading to a £12.5m increase in the Projects and Investments part of our budget for 2021/22.

Michael Gibbons CBE Chair, Elexon Ltd and the BSC Panel

Michael Gibbons CBE
Chair, Elexon Ltd and the BSC Panel

In its feedback on the initial version of the business plan published in December 2020, the independent BSC Panel stated that if Kinnect is not delivered then it is likely to ‘put at significant risk functional delivery of Market-wide Half Hourly Settlement (MHHS) as well as compliance with many operational KPIs.’

Elexon Kinnect is a cloud-based digital platform. By nature this means that it will be flexible and scalable to suit the needs of our customers. The modular technology it uses will enable us to implement BSC rule changes more quickly, and provide speedier support for innovation by existing companies and new entrants.

In January 2021 we are launching the first outward facing component of Kinnect, the Customer Solution, which will digitalise market entry processes and make processes simpler for all our customers. During 2021 we will further develop the Settlement Solution calculations engine as well as designing a new Insights Solution which will eventually replace the Balancing Mechanism Reporting Service (BMRS) to process and publish open data on the wholesale market. The £12.5m increase will help to fund the delivery and development of these Kinnect components. We explain our approach, and the benefits of the platform in more detail, later in the business plan. Overall, Kinnect will make it easier for all of our customers to use our services, and they will gain clearer insight into the wholesale market.

In the future there will be a much wider variety of participants in the electricity market, including a major increase in distributed generators and demand-side response (DSR) providers. The opening up of the Balancing Mechanism (BM) by Elexon and National Grid ESO to independent aggregators in 2019 through P344 ‘Wider Access’ is an example of what we have done to create more opportunities for participants to compete in markets.

In the Rules Management section of the business plan we explain how other Modifications will create further opportunities. We expect that the clear insights and detailed information on the wholesale market available through the Kinnect Insights Solution will play an import part in helping companies to develop new products and services.

For a number of reasons, during 2020 we experienced delays in implementing Kinnect. This included us having to divert resources so that we could rightly meet requirements to support Project TERRE (Trans-European Replacement Reserves Exchange) and its changing timelines. Elexon is a not-for-profit entity, funded by electricity market participants, and is therefore unable to carry forward any unused budget to subsequent years, any therefore unused funding for Kinnect has always been returned to BSC Parties. This is why, for example, investment of £10m allocated to deliver components of Kinnect in prior business plans (2018/19 and 2019/20) was returned to BSC Parties.

A Modification would be required for Elexon to change this practice. We will consider alternatives for our funding arrangements which could allow Elexon to retain unused balances from one year, to use the following year. We will gauge industry’s appetite for this before suggesting any changes. Alternative arrangements could smooth the impact that year to year changes in our budget may have on our customers. However we recognise that some Parties may still prefer to have unused budget returned each year.

Over the coming year, in parallel with progressing Kinnect, we will still need to meet commitments to support reforms such as Ofgem’s Targeted Charging Review (TCR), Project MARI (Manually Activated Reserve Initiative) and any other regulatory or industry driven changes. Nevertheless, we anticipate that 2021/22 will be a key year for delivering further Kinnect components.

We are aware that any increase in budget is challenging for our customers. which is why we returned £1.5m to our customers reflecting savings made on overheads during the COVID-19 lockdown and our decision not to award staff a pay rise. However, we remain focused on value for money and were pleased to see that our customers recognised this in our annual customer survey.

Elexon and the BSC Panel worked closely together in reacting to the COVID-19 lockdown. Earlier in 2020 we swiftly introduced derogations and changes to BSC rules which eased the burden for Suppliers of compliance with Settlement arrangements.

Codes Review

“We firmly believe that the Codes Review must be progressed to a conclusion where reforms can be put in place.”

In August 2020, the Panel published its two-year strategy for 2020 to 2022 which included supporting the conclusion of the Ofgem/BEIS Energy Codes Review on whether the current 11 energy codes could be consolidated into a new set of simpler and streamlined arrangements.

The Panel’s strategic objectives include the roll out of Kinnect and implementing the BSC Sandbox (where companies can trial concepts without having to meet the usual BSC rules). The Panel is also focused on Modifications which directly support progress to net zero. All of these are complementary to Elexon’s priorities over the coming year.

Ofgem is set to make a final decision in April 2021 on how and when to implement MHH Settlement. MHH Settlement is a key step towards a smarter system. It will enable new business models and services such as ‘vehicle to grid’ technology and electricity storage. It will also encourage peer to peer trading, demand-side response (DSR) and time of use tariffs.

In January 2021, Ofgem consulted on its proposal that Elexon leads industry work on implementation of MHHS as Settlement Programme Manager (Settlement PM). The role includes managing the transition to MHHS and coordinating the activity of more than 180 organisations across the sector. We look forward to continuing our work with customers in the lead up to this. BSC Parties will be funding the costs for the Settlement PM role, whichever organisation Ofgem chooses to perform it.

The introduction of the role will lead to an increase in the BSC budget. Once we know the level of the increase needed we will publish details of it for comment later this year.

Shortly before Christmas 2020, the Government published the long-awaited Energy White Paper. We welcome the proposals and look forward to playing our part by working with the industry and our stakeholders to put these changes in place to build a path to net zero.

Ofgem has proposed that the electricity system operator (SO) role is delivered by an independent body that is completely separate from National Grid. Assuming this is adopted, we hope that the move to greater independence in the electricity SO will support the rapid changes we are seeing in the market and provide much needed clarity on future arrangements. We will support the detailed design and specification of whichever solution stakeholders adopt.

“Serving at the heart of the energy industry, building a path to net zero.”

Elexon’s new corporate purpose

We believe that the Government and Ofgem have a golden opportunity to complete the Energy Codes Review by consolidating and simplifying the codes, alongside reforms to the SO roles. We published our latest Policy View in February 2021 where we propose options for achieving this. You can read more about this on page 24.

The way in which we deliver our services is as important as the services themselves. We have reorganised our internal teams into a new structure to improve how we work and how we interact with customers. It will help us to deliver the lifecycle of change more effectively and to retain knowledge and build on our existing capabilities. In short, it helps us to operate more effectively. These changes took effect from July 2020 and already we are seeing the benefits in the way we support our customers.

Our thanks go to the Panel and BSC Parties that provided feedback on the business plan. We believe that it sets out the right areas for us to prioritise over the coming year, so that we can deliver what our customers need in the short, medium and long term.

Mark Bygraves
Chief Executive Officer

Michael Gibbons CBE
Chair, Elexon Ltd and the BSC Panel