Electricity costs in the UK are set to remain elevated for an extended period, with the regulator Ofgem announcing a postponement of key reforms designed to implement market-wide half-hourly settlement (MHHS) for energy billing. This initiative, which is intended to significantly reduce household energy expenses, has now been delayed for the fourth time, this latest postponement being for an additional six and a half months.
The change, which was originally scheduled to take effect in early March 2024, will now commence in late September 2025. This means that households with smart meters, currently an optional facility for billing, will not benefit from the expected savings until that new date. The transition to MHHS will not occur simultaneously across all energy firms, further extending the timeline for when substantial changes will be experienced by consumers.
Ofgem’s ambition with the MHHS reform is to transform the way energy billing is calculated, moving to a model where energy firms will assess usage every half hour. The expectation is that this would provide consumers with savings upwards of £4.5 billion by 2045, which translates to an average annual saving of approximately £214 million. This reform aims to address the disparity in electricity pricing where fluctuations in the wholesale market do not reflect in consumer bills, often because energy companies apply less frequent billing updates.
Currently, the Ofgem price cap stands at £1,717 annually for average energy usage, but it is projected to increase by 1.2 per cent to £1,738 starting from 1 January 2025. This adjustment will result in households facing an additional £21 per year in energy costs until the price cap is expected to be reviewed again in April 2025.
A statement from Ofgem conveyed disappointment regarding the necessity of the delay, emphasising that "MHHS remains a high priority for Ofgem and government." They urged all participants involved to adhere to the revised implementation timetable to ensure that the benefits of the MHHS reform are delivered to consumers as quickly as possible. Ofgem has asserted that no further delays to these reforms are anticipated.
With the introduction of half-hourly settlements, Ofgem anticipates changes in consumer behaviour and energy pricing practices. The primary financial advantage for consumers is predicted to arise from the availability of a wider range of tariffs, particularly those that function on a 'time of use' basis, where energy rates differ depending on peak and off-peak hours. These tariffs, although currently not widespread, allow consumers to exploit cheaper rates during off-peak times, such as those offered through Economy 7 tariffs.
Moreover, the MHHS system is expected to enhance the operational efficiency of energy firms. As more households install smart meters, companies will be better equipped to accurately predict electricity demand at different times of the day. This improved forecasting will allow them to manage energy production more effectively, optimising the balance of supply and demand on the grid.
In conclusion, while the MHHS reforms hold substantial promise for consumer savings and improved energy market efficiency, the delayed implementation timeline indicates that the full benefits of this initiative will not be realised for some time.
Source: Noah Wire Services