ELEXON is the business that implements the processes to settle the payments between generators, suppliers and traders to keep the lights on in the UK.
Who is ELEXON?
ELEXON is a private business that does comparisons on the amount of electricity generators say they will produce and how much electricity suppliers say will be consumed. They also work out what the price difference is and transfer funds between parties.
ELEXON operates under the rules of the Balancing and Settlement Code (BSC) and works within the code to provide and create services that are required to implement it.
Their role in the Balancing and Settlement Code involves them processing 1.25 million-meter readings daily, settling around 37TWh of electricity, and handlings billions of pounds of clients’ money annually.
They manage settlement services for 392 companies in the electricity industry that includes:
- 23 electricity distributors
- 104 electricity generators
- 102 electricity traders
- 149 electricity suppliers
What Services Does ELEXON Offer?
ELEXON services include administration of the Balancing and Settlement Code through managing the industry rules, acting as a critical friend for the industry, providing training and customer support. This includes ELEXON analysing changes, participating in industry consultations, and providing guidance to the industry on the changes.
They operate the Balancing and Settlement Code through 24/7 settlements. They design the processes to implement the Code and change these processes to comply with industry changes. They also provide services to give assurance to the clients about their processes.
ELEXON provides impartial and expert guidance on policy delivery and supporting the policy outcomes. They scan the market to assist in directing future policy and to develop their service offerings. They have provided guidance and policy support on a variety of industry matters including:
- Half-hourly settlements
- Faster switching
- Capacity markets
- Contracts for Difference
- Warm Homes reconciliation
ELEXON also supports new electricity businesses enter the UK energy market through guidance and training.
What are Trading and Settlement?
Electricity is not able to be stored and therefore it must be used in real-time and supply must match demand, therefore generators and suppliers require a trading system and a method of settlement. This involves determining the amount of electricity that was used and how much was generated to arrange payment for it.
Electricity generation and usage are divided into half-hour periods which are called Settlement Periods. Each energy supplier will work out in half hourly periods what electricity their customers will need so that they can purchase the required amount of energy to meet the demand from electricity generators.
The window for buying and selling electricity closes an hour before the time period. During the half hour period, the electricity generator is expected to meet the contracted amount and the suppliers’ customers should use the amount contract, however, it is likely to vary from this at times.
What is the Balancing and Settlement Code?
The Balancing and Settlement Code (BSC) is part of the New Electricity Trading Arrangements that were introduced in 2001 in England and Wales. It is a requirement placed on the National Grid by its licence to transmit electricity which is regulated by Ofgem who administer the licenses for the energy industry.
ELEXON undertakes the role of administering the Balancing and Settlement Code on behalf of the National Grid. All generation and supply licensees are also bound by this code and have signed up to the Balancing and Settlement Code agreement which gives ELEXON the power to implement the code.
The Balancing and Settlement Code also places obligations on ELEXON as the administrator and its delivery of the Balancing and Settlement Code which include providing the services required in an efficient manner. Any delivery agents working within the boundaries of the Code are also bound by it.
This includes data collectors, data aggregators, and meter operators as their roles are crucial in assisting energy supplies to understand the half hourly consumption patterns that create a demand profile and predict future electricity demand.
How are Disputes and Losses Handled?
ELEXON is responsible for handling any disputes that arise as part of the trading and settlement agreements which they assess against predetermined criteria. They review the issue and send out the findings of that review to all parties affected. They escalate any disputes that are valid and founded to Trading Disputes Committee for judgment.
When electricity is transmitted from the point of generation to the end user there will be some losses along the way. The Balancing and Settlement Code arrangements account for these losses through the use of Line Loss Factors on the Distribution Networks, and through the Transmission Loss Multipliers on the National Grid transmission network. These loss adjustments are applied to the electricity generated to calculate the losses and account for them.
How is ELEXON Governed?
The ELEXON is overseen by the Balancing and Settlement Code Company Board who set up the Balancing and Settlement Code Panel to manage the Code. The role of the Balancing and Settlement Code Company Board is defined in the Code and forms part of the requirement of delivering the Code.
In 2013 there was an independent review commissioned by the Balancing and Settlement Code Board and Panel to review the Balancing and Settlement Code’s governance.
Also under their licence they are accountable to Ofgem as the energy industry regulator.
How is ELEXON Funded?
ELEXON generates its income and that for any delivery agents from those parties who have signed up to the Balancing and Settlement Code Agreement. The amount of money each party pays is dependent on what their market share is and the role they play in the electricity market, either electricity generator, supplier or trader.
The charges that ELEXON make are fixed and are agreed by the Balancing and Settlement Code Panel each year prior to the financial year commencing.
ELEXON also provides other services that are not covered by the Balancing and Settlement Code which are not fixed by the Balancing and Settlement Code Panel.