Energy UK response to NESO’s Call for Input of Balancing, Settlement and Dispatch

Executive Summary

• In a low-carbon, renewables-led system, higher redispatch volumes are both natural and efficient, reflecting the most cost-effective way to balance variable generation and deliver value for consumers.
• NESO, working with Ofgem and DESNZ, should define an efficient level of redispatch in the future system, accounting for reductions driven by strategic planning, network plans and RNP measures. This is necessary to inform residual volumes and ensure any further interventions are targeted and deliver genuine consumer value.
• Lowering the Balancing Mechanism participation threshold and introducing shorter settlement periods could help address key challenges and deliver consumer value. However, both represent significant and complex changes; if progressed, NESO should ensure a proportionate approach to implementation.
• By contrast, the remaining proposed reforms (removing the post-Gate Closure window, PN matching, and unit-level bidding) are less likely to address the identified challenges, while materially increasing complexity and costs for market participants. Energy UK notes that moving Gate Closure closer to delivery would be a more complementary measure, particularly alongside shorter settlement periods.
• The current self-dispatch model remains the most effective way to allocate risk between NESO and market participants, helping to deliver efficient, low-cost outcomes for consumers. Any reforms should therefore focus on refining and strengthening this framework, rather than replacing it.
• NESO already has a range of options to act earlier within the existing framework, such as increasing the use of Schedule 7A trades to manage constraints more efficiently. There is also potential to develop constraint management markets, as highlighted through the Constraint Collaboration Project. NESO should fully leverage these and any other existing tools before pursuing more disruptive changes to dispatch arrangements.
• The cost-benefit analysis should adopt a whole-system approach, capturing key interactions and interdependencies between reforms, including with wider ongoing changes, to provide a clear view of cumulative system impacts.
• The analysis should be adaptive, capturing changes in underlying assumptions and updating the counterfactual as the market evolves. It should also be underpinned by robust, evidence-based modelling to identify the most effective and proportionate implementation pathways.
• NESO should, where relevant, draw lessons from international experience, while remaining mindful of the extent to which direct comparisons are appropriate.