Budget

Overview of 2021/22 Budget

This part of the business plan details the budgeted costs for 2021/22 in support of our strategy as laid out earlier in this document.

Our annual budget reflects the cost of the resources we need to carry out our work in 2021/22. The key elements of our budget are:

Regular Activity:

• Our operating costs (to continue delivering our BSC obligations), the largest element of which is our people and associated overheads, and
• Our contracted expenditure of operating and maintaining outsourced services in relation to the BSC Systems and BSC Agents.

Projects and Investment Activity:

• The teleswitching service which is a pass through from Distribution Network Operators (DNOs) and which was an additional obligation introduced last year
• The expenditure associated with Change Proposals or Modifications raised by the industry, including BSC Systems Releases, impact assessments, consultancy and legal advice on Modifications and Change Proposals, which we refer to as ‘Demand Led’ because it is to deliver industry-led change
• The investment in the development of Elexon Kinnect as part of our digitalisation programme, and associated consequential business costs of its delivery, and
• Horizon-scanning market development activity, to ensure that we are prepared for future changes that may impact the BSC and BSC Parties.

Elexon is a not for profit entity, funded by electricity market participants. We do not carry any reserves or retain capital. Any underspend against budget is always returned to BSC Parties, meaning that we return money if we make savings or it transpires it is not required. In light of this, budgeting for uncertainties in advance of any new financial year, with no other access to working capital, requires careful consideration. We need to address contingencies mindful of this constraint, while also endeavouring to set challenging financial and efficiency targets for the business, which ensure we deliver the best possible value for money to the industry.

Item	Year to March 2020/21 Budget £m	Year to March 2020/21 Forecast £m	Year to March 2021/22 Budget £m	Variance to March 2020/21 Budget £m	Variance to March 2020/21 Budget %	Year to March 2022/23 Projection £m	Year to March 2023/24 Projection £m
Elexon Operational	20.9	20.3	21.3	(0.4)	(2)	21.5	21.9
Contracted	18.6	17.8	19.0	(0.4)	(2.0)	19.4	20.0
Total BSC Regular Activity	39.5	38.1	40.3	(0.8)	(2.0)	40.9	41.9

 

The budget for total regular Elexon BSC activity shows an increase of £0.8m (2.0%) against the budget for 2020/21. In real money terms, after taking into account indexation and inflation, our regular activity shows a decrease of £0.4m (1.0%) against the 2020/21 budget. Despite doing more than in previous years, we strive to reduce the cost of our regular activity through efficiency improvements.

Table 1.2 Budget for Projects and Investments

Item	Year to March 2020/21 Budget £m	Year to March 2020/21 Forecast £m	Year to March 2021/22 Budget £m	Variance to March 2020/21 Budget £m	Variance to March 2020/21 Budget %	Year to March 2022/23 Projection £m	Year to March 2023/24 Projection £m
Teleswitch (pass through from DNOs)	1.5	1.4	1.8	(0.3)	(20.1)	1.9	0.1
Demand Led (to deliver industry led change)	4.2	4.2	6.5	(2.3)	(55.3)	4.7	4.7
Investment in Systems & Business Transformation	10.1	10.1	20.0	(9.9)	(97.6)	15.0	15.0
Market development	0.5	0.5	0.5	–	–	0.5	0.5
Total Projects and Investments	16.3	16.2	28.8	(12.5)	(76.6)	22.1	20.3

 

Our central systems need to be modernised to deliver market requirements and support progress to net zero. The increase anticipated in the coming year compared to the forecast is mainly driven by the need for us to invest in delivering Elexon Kinnect (as described in more detail earlier in the business plan) ahead of progressing significant industry-driven change such as MHH Settlement.

Over the next few years we are committed to procuring, transforming and transitioning the current ageing BSC Central Systems to Kinnect. Kinnect’s cloud-based technology will be easier to adapt and maintain. It will also mitigate the risks of failure and deliver better value and service to BSC Parties, whilst providing greater flexibility. Investment of £10m allocated to deliver some of the Kinnect components in prior business plans.

(2018/19 and 2019/20) has been returned, as industry changes such as Project TERRE have rightly been prioritised over our plans to deliver Kinnect. However, 2021/22 is a pivotal year for progressing major systems’ investment. There is a window of opportunity to make significant progress on delivering our new platform to support anticipated evolution of the energy system in coming years. Investment in industry-led changes, known as Demand Led, is also increasing due to the number of changes that are to be implemented in the period.

A significant proportion of our costs for delivering the BSC arrangements relate to our contracted expenditure on the BSC Agents which provide the existing Settlement calculation systems and services. These current outsourced contracts are scheduled to end in March 2022. This requires us to retender for central services contracts in 2021/22, and to enter into transition, all of which is included in our projects and investment spending total for 2021/22.

Table 1.3 Budget Summary

Item	Year to March 2020/21 Budget £m	Year to March 2020/21 Forecast £m	Year to March 2021/22 Budget £m	Variance to March 2020/21 Budget £m	Variance to March 2020/21 Budget %	Year to March 2022/23 Projection £m	Year to March 2023/24 Projection £m
Total BSC Regular Activity	39.5	38.1	40.3	(0.8)	(2.0)	40.9	41.9
Total Projects and Investments	16.3	16.2	28.8	(12.5)	(76.6)	22.1	20.3
Total Elexon	55.8	54.3	69.1	(13.3)	(23.8)	63.0	62.2

 

The budget to deliver BSC activity in 2021/22, including the detailed breakdown of work streams described in this business plan, is £69.1m. This represents an increase of £13.3m (23.8%) against the current year’s budget which as explained above is principally attributable to the increase in industry-led change and the investment in our digitalisation programme. We believe that this budget sets our costs at a level which is appropriately
challenging for the year ahead, while recognising the operational and financial pressures faced by our customers in these difficult times.

2021/22 will be the seventh year that Elexon’s subsidiary, EMRS, delivers its services to LCCC and ESC. All EMR related costs are fully funded by LCCC and ESC and the total costs of LCCC and ESC (which include those of EMRS) are consulted on separately by BEIS. Our delivery of these services also enables us to offset some of our overheads which would otherwise have been borne by BSC Parties (2019/20: £839k) and is budgeted to be £1.0m for 2021/22.

Chart 1 below details the total costs of Elexon activity since NETA go-live in 2001/02 in real terms (in 2020/21 money after applying April RPI of each year). The costs are net of staff and overhead costs for EMR activities (which are fully funded by LCCC/ESC). It shows the infrastructure investment in the early years for NETA go-live and subsequent expansion to Scotland, then the reduced investment, as BSC Parties benefitted from sweating of those assets, as we successfully brought the costs down though efficiency savings and competitive procurements. More recently, these costs have begun to rise, reflecting the growth in system investments and digitalisation costs caused by Demand Led activity (to deliver industry-led change) and our investment in future proofing our central systems.

The following pages describe each element of our budget in more detail.

 

BSC Regular Activity

Elexon Operational

The budget for our operational costs for 2021/22 is £21.3m, as shown in Table 1.1. This includes costs such as people, occupancy, staff related and administrative expenses, as well as consultancy and legal support. This also includes the offset generated by the contribution from EMR activities.

The 2021/22 regular activity headcount as illustrated in Table 2, remains broadly consistent with the 2020/21 budget, with an increase of only a 2.3 full time equivalents (FTE).

We have budgeted based on known headcount by function and have made a conscious decision not to materially increase headcount this year compared to last year’s budget. Full consideration is taken of indexation as well as conditions and trends in our sector, and the wider economy whilst preparing this budget.

Over the past year we have sought to transform the organisation, to ensure that it is fit for purpose and best positioned to deliver on our mission and vision, by focusing on the products that we deliver for our customers. This is explained earlier in this business plan.

Contracted

A significant proportion of our costs of delivering the BSC arrangements comes from contracted expenditure for the BSC Agents and contracted service providers for running legacy systems parallel to the new technology platforms until such time as we can retire these legacy systems. These are predominantly fixed costs, linked to indexation.

The key driver of our £0.4m (2.0%) increase to £19.0m is mainly due to charges imposed to use the industry’s Data Transfer Network (DTN) for DTS messaging volumes, the cost of which is outside of our control and is fully passed through from Electralink.

Table 2 – Elexon Average Headcount for BSC

Headcount	Year to March 2020/21 Budget (FTEs)	Fcast End March 2021 (FTEs)	Year to March 2021/22 Budget (FTEs)	Variance to March 2020/21 Budget (FTEs)	Variance to March 2020/21 Budget (%)	Year to March 2022/23 Projection £’000	Year to March 2023/24 Projection £’000
BSC BAU	175.0	175.6	177.3	(2.3)	(1.3)	177.3	177.3

 

Projects and Investments

Teleswitch (pass through from Distribution Network Operators)

Following industry agreement in 2019, the Radio Teleswitch Service operational costs borne by the ENA have been recovered through the BSC since April 2020. This arrangement has an impact of £1.8m in the 2021/22 budget, however the costs are outside of Elexon’s control and will be a fully recoverable pass through cost from the ENA. We are informed the increase of £0.3m (20.1%) compared to current budget of £1.5m is due to a hardware upgrade needed to maintain the ageing RTS infrastructure through to March 2023.

Demand Led (to deliver industry led change)

To ensure that we are appropriately funded to implement changes requested by industry through BSC modifications, our budget includes provision for the cost of demand driven activity. This is activity arising from changes proposed by industry and required by the Government, EU and regulator.

The Demand Led budget for BSC systems releases has been set at £6.5m. This is an increase of £2.3m on the previous year’s budget. The budget incorporates scheduled BSC changes, notably Behind the Meter, Enabling reform of residual network charging Methodology to set Physical Notifications and a number of other approved BSC changes and Ofgem led Significant Code Reviews. The budgeted figures are based on the impact assessments of known Modifications, taking into account estimates of historic change costs, as well as taking a view on new changes that may come forward during the year, but that have yet to be fully scoped.

Investment in System Strategy and Business Transformation

This area of our budget relates entirely to the transformation and transition (Digitalisation Programme) of the current BSC Central Systems to Elexon Kinnect, as explained earlier in the plan. A provision is included for project resources within this budget.

In 2021/22 we will be continuing the migration plans for the Settlement Solution which will perform our data and calculations responsibilities, in line with our technology route map. We will be releasing new solutions from our Customer Solution product to reduce and remove cumbersome form filling. Finally we will begin work to migrate BMRS to the Elexon Kinnect platform, which will receive, publish and process accessible data for the industry. As a cloud-based service, Elexon Kinnect will leverage storage and processing capabilities at scale. One of the key benefits of this in the future will be that customers can ‘self-serve’ data requests and perform ad-hoc analysis, making the insights more valuable and customisable. This is explained in more detail earlier in this business plan.

As we stated in last year’s business plan we have adopted a phased approach to delivering the Digitalisation Programme, to minimise the overall cost and risk to Parties. For 2021/22 we have included a budget of £20.0m.

Market Development

The budget for Market Development of £0.5m enables us to horizon scan for any impending changes within the GB energy market that may impact the BSC, and is unchanged from 2020/21.

We expect there to be a number of industry developments that require Elexon to continue to monitor, engage and informally assess impacts outside of the formal change process. This is particularly the case with the Government’s target of achieving net zero and in considering what the energy market can do to facilitate and aid that goal.

In addition we have set out some of the initiatives that we have already been working on earlier in this document. We continue to engage with BSC Parties and potential new market entrants to ensure the BSC enables their innovative ideas and ambitions.

Charging Analysis

This section outlines how we expect to charge the budget to BSC Trading Parties. Table 3 contains charging proposals from Section D of the BSC. All of the charges presented in Table 4 exclude value added tax (VAT).

The BSC Panel endorsed a review of Section D Charges to ensure that they are appropriately set and fit for purpose. It instructed Elexon to engage an Issue Group in assessing what behaviours are driving the costs, whether the current charging structure is fit for purpose and, if not, what alternative approach BSC Parties would prefer. The Panel considered the Issue Group findings and determined the charging regime is fit for purpose, reflective of the BSC Parties’ activities and fair to existing and new market participants.

Table 3
Section D – Charging *

Based on the information in Table 3 examples of charges to BSC Parties are provided. First, the 2021/22 Annual Budget is set out in Table 4 below.

Table 4
2021/22 Annual Budget

Assumed Split of Costs
	2020/21 Budget	2020/21 forecast	2021/22 Budget
SVA Costs	6.8	6.7	7.0
Other Costs	49.0	47.6	62.1
Total	55.8	54.3	69.1

 

Second, various assumptions about the size of the market are made. These are presented in Table 5.

Table 5
Market Assumptions

Market Assumptions	2020/21 Budget	2020/21 forecast	2021/22 Budget
Number of Trading Parties	440	451	490
Sales – Notified Contract Volumes (TWh)	780	784	800
Purchases – Notified Contract Volumes (TWh)	780	784	800
Generation (TWh)	242	260	272
Supply (TWh)	237	260	265
NHH Supply (TWh)	107	117	119
HH Supply (TWh)	130	143	146
CVA BM Units	840	841	850
SVA Base BM Units	225	225	230
SVA Additional BM Units	185	271	340
Data Line	63	53	53
Comms Software (5 users)	29	29	29
Comms Software (additional user)
CVA Metering Systems (MSIDs)	925	924	930
SVA Metering Systems (MSIDs)	31,785,166	31,368,999	31,525,844

 

Third, the charging regime from Section D of the BSC in Table 3 is then applied to costs in Table 4 based on the assumptions in Table 5. This gives the estimated charges (either specified charges or £/MWh fees) as shown in Table 6.

Table 6
Expected Charges

Charge Item	2020/21 Budget	2020/21 forecast	2021/22 Budget
Specified Charges
CVA BM Units (£/month)	–	–	–
SVA Base BM Units (£/month)	–	–	–
SVA Additional BM Units (£/month)	60	60	60
Data Line – estimated average (£/month)	700	700	700
Comms Software – average quad2 processor (£/month)	1,080	1,080	1,080
Comms Software {additional user} (£/month)	22	22	22
Contract Traded (£/MWh)	0.0005	0.0005	0.0005
CVA Metering Systems (£/month)	50	50	50
Base Monthly Charge (£/month)	250	250	250
SVA
SVA Metering Systems (£/msid/month)	0.00915	0.00915	0.00925
Gen Energy SVA (£/MWh)	0.013	0.013	0.013
Main Charges
Energy fee (£/MWh)	0.08716	0.08100	0.11153