About the electricity industry, the BSC and Elexon
This page sets out the background information about the Balancing and Settlement Code (BSC) and different areas that impact its day-to-day running. There are also details about the wider electricity industry in Great Britain and its relationship with the BSC.
On this page
BSC Panel response to Energy Code Governance Reform: Call for Input30 January 2023
Ofgem confirms Elexon as the Capacity Market Advisory Group secretariat9 May 2022
Ofgem confirms Elexon will operate key IT data platform to support MHHS22 April 2022
Elexon views about decisions on the Future System Operator role and the codes review6 April 2022
BSC Insight: ‘Event-driven’ architecture can help to release the value of energy data17 February 2022
Energy Systems Catapult and Elexon’s report on accurately tracking carbon in electricity markets6 December 2021
The Balancing and Settlement Code (BSC)
The BSC is a multi-party contract the sets out the ground rules for the electricity system in which suppliers can purchase electricity from the generator of their choice, and consumers can choose which supplier provides them with power. It is signed by the companies that operate in Great Britain’s wholesale electricity market.
The code takes into account the fact that contracts can be agreed between generators and suppliers in advance, but no one really knows precisely how much power will be generated or used until the moment it all plays out in real life. The BSC makes sure that payments for imbalances in wholesale electricity supply and demand are settled accurately.
Elexon manages the BSC, and it is Elexon’s job to compare how much electricity generators said they would produce and suppliers said they would consume, with the actual volumes that are generated and used. Elexon makes sure that everyone is paid or billed accurately for any differences.
These payments act as an incentive for suppliers and generators to help keep the electricity system in balance.
Elexon provides an ‘end-to-end’ management service for the BSC. This means it offers a full range of services from helping companies to enter the market, to making sure that they’re meeting the rules of the BSC once they’re operating in it.
Training and guidance
There are regular training sessions for people involved in the electricity industry. These include an overview of the BSC and specific sessions of key parts of working in the electricity industry. We also produce a collection of guidance pages to help explain the various processes and activities involved.
- More on our training services
- BSC Guidance Notes
- More on operational processes
- More on market entry and exit
It is a condition of holding a Generation or Supply License to sign up to the BSC. Therefore our customers, known as BSC Parties, cover the entire wholesale electricity sector in Great Britain and include suppliers, generators, distributors, traders, and energy importers and exporters.
The BSC is governed by the BSC Panel and its committees and industry groups. They meet to fulfil the duties of the BSC and discuss issues around day to day operations. This includes how changes to the BSC itself, Code Subsidiary Documents and BSC Systems are developed, assessed and implemented.
Part of Elexon’s role as administrator of the BSC is to monitor the compliance of all BSC parties and to run Performance Assurance activities. There are a number of techniques that Elexon uses to confirm compliance or identify issues that may need to be addressed.
The Change process
The BSC Change process is used to introduce changes to the BSC arrangements in response to any concerns, problems or defects that Parties may identify in the current processes. Under these processes, changes can be made to the Balancing and Settlement Code, its Code Subsidiary Documents and to BSC Systems.
History of the BSC
In March 2001, the Balancing and Settlement Code (BSC), was launched as part of NETA (New Electricity Trading arrangements). Elexon administers the Code on behalf of the UK electricity industry.
About the electricity industry
The electricity market in Great Britain is regulated by the Gas and Electricity Markets Authority, operating through the Office of Gas and Electricity Markets (Ofgem). Ofgem’s role is to protect the interest of consumers by promoting competition where appropriate.
Ofgem issues companies with licences to carry out activities in the electricity sector, sets the levels of return which the monopoly networks companies can make, and decides on changes to market rules.
The electricity industry consists of three main parts:
- Generation (making electricity)
- Networks (transporting it from where it is generated to where it is used)
- Supply (selling it to the end consumer)
A few energy companies operate across all three of these areas, while others operate in only one or two.
At a high level, the electricity market in Great Britain allows:
- Customers to choose the supplier of their choice
- Suppliers to buy electricity to meet the demands of their customers from the generator(s) of their choice
- Organisations without a physical demand for electricity, or any means of generating electricity (e.g. Banks), to trade electricity. These are known as Non Physical Traders.
Suppliers, Generators and Non Physical Traders are all referred to as Parties in the BSC.
About Net Zero
In 2019, legislation was passed in the UK, which required at least a 100% reduction of greenhouse gas emissions by 2050 against a 1990 baseline. As a result, the UK became the first major economy to commit to Net Zero by 2050.
In the past decade, the UK has reduced climate emissions at a faster rate than any country in the world. However, the urgency of climate change means that the UK has to go further and beyond its current commitments to decarbonisation and Net Zero. The Intergovernmental Panel on Climate Change (IPCC) reported that in order to reach Net Zero by 2050, we would need to reduce emissions by 45% by 2030.
Ahead of the COP26 Elexon joined the SME Climate Hub and the Race to Zero International Campaign. We have committed to halving our greenhouse gas emissions by 2030 and reaching Net Zero emissions by 2050.
At Elexon, we prioritise enabling innovation within the industry, and facilitating the changes needed in the energy industry to achieve Net Zero.
To support this, we have developed a new corporate purpose ‘Serving at the heart of the energy industry, building a path to Net Zero’.
Generators produce the electricity we use every day. They use different fuels and technologies to do this. There are many companies in the electricity generation sector, from large multinationals operating a diverse generation portfolio to small, family-owned businesses running a single site.
Most electricity is generated ‘in bulk’ at large power stations connected to the national transmission network. However, electricity can also be generated in smaller scale power stations which are connected to the regional distribution networks, some can even be in the home. How many power stations are built and of what type is up to companies to decide on the basis of market signals and government policy on issues such as the environment.
About the Networks
There are two types of electricity network: transmission and distribution. Transmission networks carry electricity long distances around the country at high voltages, while distribution networks operate at lower voltages, taking electricity from the transmission system into homes and businesses.
Electricity networks are regulated monopolies, which means that they are built, owned and maintained by only one company in a particular area. These companies make their money by charging electricity producers and suppliers to use their wires. The regulator sets the maximum amount of revenue which the network companies can earn.
Interconnectors are transmission cables that allow electricity to flow from one country to another. There are interconnectors which exist between the British mainland and Northern Ireland, France, Holland, the Republic of Ireland and Norway.
Suppliers buy electricity from generators, traders and power exchanges in the wholesale market and sell it on to end consumers. Any discrepancies between their wholesale purchases and what their customers use are managed through the balancing mechanism. Suppliers operate in a competitive market where customers can choose which supplier provides them with electricity. There are six major suppliers and a number of smaller (often niche) suppliers.
The transmission system throughout Great Britain is operated by National Grid, which is responsible for balancing the system and ensuring that supply of electricity equals demand on a second-by-second basis. Electricity is a ‘just in time’ product, which technology does not yet allow to be stored in large quantities.
The rollout of smart metering is one of the biggest challenges to face the energy industry since privatisation. As an organisation that manages wholesale electricity settlement, ELEXON has a key role to play in helping the industry meet that challenge and ensuring settlement is flexed to realise the benefits that smart brings.