New Penalties: MHHS Supplier Charging Regime

Thanks to the new Supplier Charging Regime, the impact of underperforming just 1% below the Market-wide Half Hourly Settlement (MHHS) industry settlement standard could be as much as a loss of £691,000 over the year.

Energy Suppliers will experience another seismic shift in their charging regimes with MHHS.

Here, we’ll explain the Supplier Charging Regime before and after MHHS,  and what suppliers can do to avoid the tough new penalties.

What is the Supplier Charging Regime?

The supplier charging regime is a mechanism administered by Elexon which collects penalty funds where suppliers don’t hit settlement targets.

Those settlement targets are set out in the Balancing & Settlement Code which sets the standard for all industry participants. This includes levying penalty charges when settlement standards are not met.
However, as Elexon are a not-for-profit organisation, they cannot keep the penalty charges.

Instead they redistribute them back out to the suppliers.

Suppliers with large NHH portfolios win.

Suppliers with large NHH portfolios receive the redistributed charges, even if they were the ones who paid the penalties.

And what’s more, even though penalties for poor data are in place, the redistribution of those funds abased on NHH estates means you can get more back than you paid out.

Effectively, the current system is a revolving door of funds which benefits suppliers with large-scale NHH portfolios. There’s no pressure to improve data quality or reduce estimated data for the system or consumers.

In other words, it’s like being charged a lot of car parking tickets and getting the money back with interest just because you have a lot of cars.

The changes to the Supplier Charging Regime after MHHS.

The new Supplier Charging Regime rewards settlement performance and incentivises change with tougher penalties.

It’s the right approach: reward superior performance and penalise those that don’t deliver.

Reward for good performance.

Suppliers will be more incentivised than ever to provide actual HH data. They will gain savings and receive bonus payments for more accurate data at the critical SF and RF settlement runs.

Penalties for poor performance.

The risk and resulting penalty charges for underperforming on settlement runs are much heavier. Suppliers will be subject to more rigorous charges if they add less accurate data into settlement runs.

Small print for Suppliers under the new regime:

• The calculation for the charges will differ slightly based on which metering segment the settlement data is referring to – ADS or SDS. The formula is the same but the penalty rates will be different
• The calculation assumes a performance baseline of 100% actual data at every run
• The difference between the actual data percentage is then marked as estimated
• Those marked as estimated will then incur charges, the megawatt-per-hour price will be based on the dynamic credit assessment price
• These charges reflect the Supplier performance relative to the industry average
• The impact of underperforming just 1% below the industry standard could be as much as a loss of £691,000 over the year
• The benefit of settling at 1% higher than the industry standard could earn as much as £691.000 for a portfolio of ~1900 MPANs

Suppliers need to choose partners who perform.

In the new Supplier Charging Regime, suppliers should consider their choice of data and metering partners.

There’s no alternative to plug the penalty charges black hole through redistribution. It will only happen for suppliers who are rewarded because of their settlement performance.

It’s about taking a longer-term view to position yourself to reap the rewards for industry-leading performance.

The better suppliers perform, the higher the bonus payments. It’s a win-win if you have the support of the right partner.

We consistently perform above industry standards and lead the industry with the settlement performance we provide our Suppliers through our combined MOP DC offering.

Stark Data and Stark Connect are the powerful combination and our performance speaks for itself.

We’re the only agent qualifying for all data, metering and network MHHS roles, we’re in the first wave and we’re ready to go.

Summary

The MHHS programme is looking to make savings of ~£4 billion to energy consumers and is relying on accurate HH settlement data to make it happen.

Changes to the Supplier Charging Regime will mean a direct impact on the bottom line & put the focus squarely on accurate & complete data for settlement.

The current charging regime does not deter Suppliers from working with underperforming data & metering agents.

Suppliers need to reassess their Data and Metering agent relationships and choose partners who can perform.