NESO IEP5 presents finalized CBA methodology and cost estimates for Lowering BM Threshold and Shorter Settlement Period reforms

At the 8 September 2026 Industry Expert Panel (IEP5) session, NESO and Baringa presented updated policy design, proposed target operating models, market participant CAPEX cost estimates, and cost-benefit analysis (CBA) findings for two GB Balancing and Settlement Reforms (RNP) levers: Lowering the BM Threshold (LBM) and Shorter Settlement Periods (SSP). This includes archetype-specific cost breakdowns (asset owners, suppliers, aggregators/VLPs, non-physical traders), CAPEX ranges (e.g. LBM £1.2m-£9.2m per archetype; SSP 15-min £1m-£12.9m per archetype, 5-min £1.9m-£26.7m per archetype), illustrative NPV trajectories showing breakeven at year 10 (LBM) and year 15 (SSP), and detailed expected system outcomes covering NIV chasing reduction, constraint management, reserve procurement, and distributional impacts.

These finalized cost estimates and CBA outcomes materially shape whether and how NESO proceeds with lowering the BM participation threshold (from current MW levels to as low as 1MW visibility/10MW full participation) and shortening settlement periods (from 30 minutes to 15 or 5 minutes). The reforms have significant CAPEX implications for market participants (hundreds of millions to over a billion pounds across archetypes), affect BM liquidity and imbalance pricing granularity, and carry knock-on effects for Capacity Market, CfD, and intraday market dynamics, making this a pivotal input to industry consultation before final policy decisions.

This IEP5 pack marks a substantive methodological maturation from the prior IEP4 pre-read: cost categories have moved from draft framework to quantified central-case CAPEX estimates with sensitivity ranges, and the CBA has progressed to illustrative NPV trajectories with explicit breakeven timing. The bifurcated treatment of 15-minute versus 5-minute settlement (with 5-minute CAPEX 142% higher than 15-minute, driven by mandatory automation) signals that NESO is testing industry appetite for a more radical granularity change before committing to a base case. The LBM design retains phased retrospectivity and threshold questions as open items, while SSP's phasing links meter replacement cycles to a 2032 transition and 2035 enduring state for retail consumers. Materiality-based prioritisation and explicit distributional impact analysis (winners/losers among NIV chasers, aggregators, BRPs) suggest NESO is preparing for contested feedback, particularly from flexibility providers who may lose NIV-chasing revenue under LBM. The explicit statement that content is 'Work In Progress' and 'Draft for Working Session' signals this is a formal consultation checkpoint rather than a settled design, with the breakout discussions structured to solicit direct challenge to assumptions before finalizing the CBA.

Balancing and Settlement Code (BSC); GB Grid Code; BEGA connection contracts

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