NESO's IEP4 pre-read details CBA sensitivity/variant methodology and granular cost framework for GB balancing and settlement reforms

The newly reviewed IEP4 pre-read document (29 July 2026) provides substantially more granular detail than previously captured on two workstreams: (1) NESO's CBA sensitivity and variant analysis approach, including up to 10 prioritised candidate sensitivities (low/high case bookends, alternative congestion backgrounds, a P462 interaction test, physical NIV-chasing behavioural assumptions, BM participation responses, risk premia, supplier cost pass-through, discount rate and assessment-period sensitivities, and carbon valuation) plus principal design variants (LBM threshold/participation approach, MTD=GC treatment of OTC/non-physical trading, timing/phasing, SSP granularity choice between 5-minute and '5-minute ready' 15-minute, SSP retail-market applicability, and supplier/non-BMU application); and (2) a detailed cost framework mapping macro cost categories (Technology & Systems, Data & Metering, People & Operating Model, Governance & Compliance, Commercial & Contractual) against specific market-participant archetypes and named central bodies, with defined cost items, scaling factors and policy-impact flags per reform lever. The document also confirms the Assessment of Impacts (AoI) is now running in parallel with the TOM Assessment rather than sequentially, reflecting compressed delivery timelines.

This level of methodological detail shows NESO building an evidence base granular enough to withstand scrutiny in a split regulatory decision (Ofgem for LBM/market trading changes, Secretary of State for shorter Settlement Period). The explicit flagging of 'High' analytical challenge on SSP retail applicability, MTD=GC treatment of OTC trading, and the 5-minute SSP sensitivity signals these remain genuinely contested design forks that could materially change both benefit realisation and cost burden depending on how they are resolved. The P462 sensitivity, explicitly tied to Elexon's own CBA finding of a producer>consumer welfare transfer under FPN=TP, formalises the cross-workstream dependency risk already flagged. The parallel running of AoI and TOM assessment, justified by schedule compression, increases execution risk ahead of the late-October recommendation paper.

The breadth and structure of the candidate sensitivities and variants suggest NESO is deliberately hedging against modelling uncertainty in the most consequential and least evidenced areas — physical NIV-chasing volumes/algorithms and BM participation responses near the new 1MW threshold — by using 'Medium' rather than 'Low' analytical-challenge ratings, implying these will materially move the final CBA numbers. The decision to treat P462 as a sensitivity rather than a full model integration indicates NESO wants to preserve optionality on how much credit the RNP package takes for benefits that might otherwise accrue to a separate, already-progressing code modification, which is an important signal for how the two workstreams could be reconciled in the recommendation paper. The archetype-based, organisation-specific cost item taxonomy (splitting central body costs across NESO, Elexon, DNOs, Power Exchanges and Smart DCC) indicates the cost case is being built bottom-up in a form suited to underpinning separate Ofgem and Secretary of State cost-benefit justifications rather than a single consolidated ask. The explicit acknowledgment that AoI and TOM assessment are now running in parallel, justified by 'compressed delivery timelines,' is a soft admission of schedule risk that could compress the quality or duration of stakeholder feedback before the late-October recommendation paper is finalised.

GB Balancing and Settlement Code (BSC); Grid Code; Ofgem statutory decision-making powers (lower BM threshold and market trading reforms); Secretary of State decision-making powers (shorter Settlement Period)

IEP stakeholder engagement: presentation of final CBA and implementation assessment results · 1 Oct 2026

Primary sources