
With new technologies popping up left and right, energy prices going on a rollercoaster and companies investing a lot of cash into new potential business areas - no doubt we’re seeing a kind of gold rush sentiment in the industry. The UK continues to make the most sense of the chaos by handling it, naturally, in an orderly and progressive fashion.
By making use of the flexibility offered by demand response, battery storage, and dynamic pricing programs, up until today, the UK has been able to successfully integrate a substantial amount of renewable energy into its electricity mix and also modernize its grid. This had a lot to do with the unique position of Great Britain’s grid operator National Grid ESO (NGESO). With only DC links the isolation from neighboring transmission system operators allowed it to implement changes quickly without requiring extensive coordination with other TSOs, as we already talked about in our most recent article.
However, as the UK continues to push forward, there are some potential roadblocks, especially when it comes to a lack of adequate settlement mechanisms for distributed energy resources (DER) that are behind the meter (BTM). It seems as if these times of rapid and accelerating change are really calling for more rules and more transparency if we want to integrate all of the promising new technologies to facilitate an even higher share of renewables. P375 looks like it could be a seminal moment in this process.
Upstream of the meter, measuring when and how much energy was being delivered is relatively easy, as you can work with a lot of data from numerous supply points and substations of an electricity grid. But what happens downstream of the meter? This is still almost unknown territory. So if a device located BTM happens to provide valuable flexibility to the grid, how can this be attributed to the device and remunerated appropriately? Here a lack of fair and accurate billing mechanisms prevents an adequate account for the services provided by BTM installations.
Now, before diving into BTM settlement, it's important to understand what these assets are and the value they can provide. BTM refers to any energy resources or controllable loads that are located "behind" a site's main electricity meter, on the customer's side rather than the grid side. Common examples include rooftop solar panels, battery storage systems, electric vehicles (EVs), and demand-responsive equipment like HVAC systems or industrial processes.
The Power Behind the Meter (BTM)
The key benefit of BTM assets is their potential to act as flexible resources that can help balance electricity supply and demand in real-time. For example, batteries can store excess solar generation during the day and discharge it in the evening when energy demand peaks. EVs can adjust their charging patterns based on grid conditions and perhaps soon also export back to the grid (V2G), while factories can shift the timing of energy-intensive processes to align with periods of abundant renewable output. Collectively, these BTM assets offer a vast reservoir of flexibility that can support the integration of variable renewables, reduce the need for expensive grid upgrades, and enhance overall system resilience.
However, the ability to unlock this potential hinges on having the right market structures and incentive mechanisms in place. This is where settlement comes in – the process of reconciling the differences between planned and actual energy production and consumption, and crucially, compensating market participants accordingly for providing flexibility when it was needed the most. Accurate and timely settlement at low cost is essential for encouraging the desired behaviors and investments from BTM asset owners.
The Problem with Traditional Settlement
Historically, settlement in the UK and most other countries has been based solely on metering at the "boundary point", the site's connection point to the electricity grid. This approach works fine in a centralized system where power flows in one direction from large generating stations to end consumers. But it starts to break down in a world of DERs, where customers are increasingly becoming prosumers, both drawing from and injecting power back into the network.
The limitations of boundary point settlement are twofold. First, it obscures the actual performance and value of individual BTM assets, as their contributions are lumped together with all other demand and generation at the site level. For example, consider a commercial building with rooftop solar panels and a battery energy storage system behind the meter. On a sunny day, the solar panels generate excess power that is stored in the battery. Later, during peak demand hours, the battery discharges to reduce the building's net power draw from the grid. However, with boundary point settlement, the specific contributions of the solar and battery are netted out. The building owner is compensated based on the power import/export at the boundary meter optimized to the site's supplier tariff but not for the extra services the battery could provide to the grid by delivering Ancillary Services and responding to market price signals. This gives owners little reason to fully optimize the battery's operation. As a result, the financial incentives for customers to invest in and optimize their DERs are diluted.
Now let’s look at it from the grid’s side, at a time when frequency happens to rise too high. The grid would benefit from the site's battery charging from the grid and curtailing the solar panel generation. However, without BTM metering, the site would likely be generating the maximum from the PV and importing less power from the grid, missing the opportunity to stabilize the grid frequency and optimize the overall energy management.
Second, relying solely on the boundary meter introduces risks for aggregators and other third parties who seek to coordinate BTM assets to provide grid services. Since they're only settled based on the net impact at the boundary, aggregators can face significant imbalance charges if the actions of the BTM assets in their portfolio are counteracted by other on-site loads outside of their control. Just imagine an aggregator signing up 100 homes with smart thermostats to provide demand response during peak hours. However, if some of those homes happen to be running other large appliances like an electric vehicle charger or clothes dryer during the demand response event, that increased load will counteract the reduction from the smart thermostats. The aggregator will be penalized based on the net impact at each home's boundary meter, even though the smart thermostats performed as planned. This imbalance risk creates a major barrier to entry and limits the pool of flexibility that can be harnessed.
In both cases, the limitations of boundary point settlement make it harder to fully optimize, recognize and reward the value that individual DERs can provide to the grid. Moving to more granular, asset-level settlement behind the meter could help address these issues and allow for more flexibility coming from BTM and, most importantly, would open up opportunities for implementing asset-specific dynamic tariffs (e.g. for smart EV charging, for heat pumps, for battery storage), which can incentivize efficient energy use and support the integration of DERs into the grid.
P375 Modification brings BTM Asset-Level Settlement
To address these shortcomings, the UK has introduced a landmark change to its settlement framework through the P375 modification to the Balancing and Settlement Code (BSC). P375, proposed by Enel X, enables the use of secondary "asset meters" to record the energy production and consumption of individual BTM resources for settlement purposes, separately from the boundary meter. This allows for a much more granular and accurate view of each asset's performance and creates a pathway for them to be compensated directly for the balancing services they provide.
Under P375, BTM asset owners can now partner with independent aggregators known as Virtual Lead Parties (VLPs) to participate in the Balancing Mechanism and other flexibility markets. The VLP takes on the role of coordinating and optimizing the dispatch of the BTM assets in its portfolio to deliver balancing services to the grid operator. Crucially, the asset meters allow the VLP to precisely measure and verify the delivery of those services by each individual asset, removing the previous imbalance risks associated with boundary point settlement.
To ensure the integrity and accuracy of this asset-level metering, P375 has introduced a new Code of Practice (CoP11) that sets out technical requirements and standards for compliant metering systems. This includes provisions for three categories of asset meter types – utility-grade fiscal meters, operational meters, and device-embedded submeters – giving asset owners a degree of flexibility in how they implement BTM metering. However, all meter data must be collected and formatted according to CoP11 specifications to ensure it can be properly validated and used for settlement purposes.
Realizing the Full Potential of BTM Assets
The changes brought about by P375 represent a huge leap forward for the full participation of BTM assets in the UK's electricity markets. By providing a clear mechanism for these assets to be compensated for their flexibility services, it creates a much stronger business case for investment in DERs and encourages more active management of those resources to support grid needs.
This is particularly important as the UK works to meet its ambitious decarbonization targets, which will require a rapid and massive scale-up of renewable energy coupled with a more flexible and responsive demand side. BTM assets like batteries, EVs, and smart devices will play a central role in balancing the variability of wind and solar generation and keeping the lights on during periods of high demand and low renewable output.
At the same time, BTM settlement also opens up new opportunities for consumers to engage with the energy market and be rewarded for their contributions to a cleaner, more resilient electricity system. As the costs of DERs continue to fall and more households and businesses gain access to these technologies, the potential pool of flexibility grows larger and larger.
Settling for More
Of course, the implementation of BTM settlement is not without its challenges. Validating and processing asset-level meter data from millions of individual resources introduces new complexities and costs compared to the status quo. Robust systems will be needed to ensure the accuracy and security of this data and to protect against gaming or fraud. There may also be concerns around consumer privacy and data protection that need to be carefully managed.
But these challenges are not insurmountable, and the benefits of BTM settlement far outweigh the costs. By laying the groundwork for a more inclusive, transparent, and efficient electricity market, initiatives like P375 are essential for accelerating the clean energy transition and delivering a net-zero future.
The United Kingdom's remarkable progress in the energy transition can be seen as a direct result of its pioneering role in embracing distributed energy resources (DERs) and establishing progressive market structures. However, without the right financial incentives and verification processes in place, the growth of DERs may fall short. Getting these foundational elements right, the UK could unlock the full potential of DERs and remain the undisputed kings of the global energy transition. But most importantly, the UK asserting itself at the forefront of this transformation sets an example for other countries to follow.
Our Energy Market of Things (EMoT) is one software solution that can help to extract the full value of DERs and integrate them into power markets.
Next Up: Half-hourly settlement
Traditionally, settlement was based on manual meter readings, often taken monthly or even annually. With the advent of smart meters, energy consumption and production can now be captured much more frequently, although this capability is not yet fully utilized by most suppliers. In our next article you can read more about the MHHS program, which aims to implement half-hourly settlement for all consumers. Find out how this transformation will be carried out and what it means for the future of energy consumption.