Market-wide Half-Hourly Settlement (MHHS) will be rolled out over 18 months from spring 2025, according to Ofgem's discussion paper on the future of domestic price protection, published on 25 March 20241. The paper states that MHHS "will enable this flexibility by exposing suppliers to the true costs of their customer's electricity consumption patterns"1.
The change matters because the default tariff cap is currently built on a flat unit rate. Ofgem describes the cap as "based on the tariff structure that prevailed at the time of its implementation, consisting of a standing charge and flat unit rate (ie a single unit rate that does not vary throughout the day)"1. Under MHHS, suppliers face differentiated costs across the day, but the flat cap does not reflect them. Ofgem states that "customers with a higher proportion of their consumption during more expensive (peak) periods will become more expensive to serve, and those with lower peak consumption, less expensive"1.
The paper sets out the risk that customers able to shift consumption move to a time of use tariff, while those with high-cost consumption patterns stay on the flat default tariff. Ofgem says this "could lead to a selection effect where price cap customers are increasingly customers with a higher cost to serve"1. It adds that to let a notional supplier recover efficient costs for default tariff customers, "Ofgem may have to increase the level of the cap"1.
Ofgem has not formed a view on the right approach. It lists options that vary how far the cap should be flat or time of use, universal or targeted, and stringent or market determined, and says these "are illustrative rather than exhaustive and could be implemented independently or combined"1. The paper also notes that "different approaches could be taken to gas and electricity bills, as the benefits of flexibility do not apply to gas supply and demand in the same way as they do to electricity"1.
"The introduction of Market-wide Half-Hourly Settlement (MHHS) from 2025 will enable this flexibility by exposing suppliers to the true costs of their customer's electricity consumption patterns."
| Element of the cap | Current position | Option raised |
|---|---|---|
| Price structure | Flat unit rate plus standing charge | Time of use, or a combination |
| Coverage | Universal, all default tariff customers | Targeted to a sub-set, such as those in vulnerable situations or on prepayment meters |
| Level | Stringent, based on a notional efficient supplier | Market determined, such as a relative price cap, or principles based |
Why it matters for households
Half-hourly settlement changes what a supplier pays to serve a home, and that cost can be passed through in the price a household pays. A home that uses most of its electricity in the evening peak becomes more expensive to supply than one that shifts load to the night, and the flat cap does not currently distinguish between them. For a household with an electric vehicle, a heat pump or a battery, the difference between a flat rate and a time of use tariff is the difference between paying the same rate all day and being paid to move load. For a household that cannot shift when it cooks, heats water or runs medical equipment, the same change can mean paying more for a consumption pattern it cannot alter. Ofgem's own framing is that the shifts in consumption "will reduce overall system costs, bringing down bills for all", while customers who cannot engage need protection1. The half-hourly settlement change therefore bears directly on a home's energy independence: the more a household can choose when to draw power, the more control it has over its bill, and the less it depends on a single flat national price.
What happens next
The paper's response deadline was 10 May 2024, and Ofgem said it would publish non-confidential responses alongside a decision on next steps1. The MHHS rollout itself is stated as running over 18 months from spring 20251. Ofgem has not reported a decision on whether the cap will move to a time of use structure.
Sources1 cited
- Future of domestic price protection, ofgem.gov.uk