Data on flexibility trading by Distribution Network Operators: Flexibility service providers should share their views with Ofgem

What this is about

Ofgem is consulting on a licence change that would remove certain reporting requirements imposed on Distribution Network Operators (DNOs) relating to their procurement of flexibility services. Elexon is not the author of the underlying policy — this is a signposting notice urging flexibility service providers to engage with the Ofgem consultation before the window closes.

The substance matters because DNO flexibility procurement is one of the few areas where distributed energy resources — batteries, demand response, embedded generation — interact directly with regulated monopoly networks. The reporting requirements exist to make that interaction visible: what services DNOs are buying, from whom, at what price, and whether they are genuinely using market-based procurement or defaulting to network reinforcement. Removing these requirements does not change the underlying obligation on DNOs to consider flexibility alternatives, but it removes the mechanism by which anyone outside the DNO can verify that they are doing so.

Key points

The reporting obligation is a transparency tool, not a burden. DNOs are required to report on their flexibility procurement under licence conditions that Ofgem introduced to ensure distribution networks consider non-network alternatives before investing in traditional reinforcement. The data these reports produce — volumes procured, prices paid, service types, counterparties — is the only standardised, public window into whether DNOs are genuinely engaging flexibility markets or treating them as a box-ticking exercise.

Removing reporting reduces transaction costs for DNOs but shifts information costs onto everyone else. Ofgem's rationale will likely frame this as reducing regulatory burden. That framing is accurate but incomplete. The reporting cost falls on six DNO groups, all of which are large, well-resourced regulated monopolies. The information benefit accrues to hundreds of flexibility providers — typically smaller companies — who use published data to identify procurement opportunities, benchmark prices, and challenge non-competitive behaviour. This is a textbook case of concentrated cost reduction defeating dispersed benefit: the DNOs are organised and present in the consultation; the flex providers are fragmented and may not show up.

Opacity favours incumbents. Without published data on flexibility procurement, DNOs face less external scrutiny on whether their cost-benefit analyses genuinely compare flexibility against reinforcement on a level playing field. Network reinforcement sits in the Regulated Asset Base and earns a regulated return. Flexibility procurement is an operating cost that does not. The Averch-Johnson incentive is already tilted toward building assets rather than buying services; removing the reporting requirement that makes this tilt visible compounds the problem.

The Elexon angle is notable. Elexon's role here is as a market facilitator flagging a risk to market participants. BSC parties and flexibility providers overlap — settlement data, metering, and balancing all touch distributed flex assets. Elexon is effectively saying: this matters to your commercial position, and if you do not respond, the change will happen without your input.

The consultation sits within a broader pattern. Ofgem has been reviewing DNO reporting requirements across multiple areas, including the RIIO-ED2 framework. The direction of travel is toward lighter-touch reporting where Ofgem judges the data is not being used effectively. The question is whether "not being used effectively" means the data is genuinely redundant, or whether the users — smaller market participants without regulatory affairs teams — simply lack the resources to extract value from it in ways Ofgem can observe.

What happens next

Consultation response deadline. The Ofgem consultation has a closing date — flexibility providers and other interested parties need to check the Ofgem website for the specific deadline and respond directly. Elexon's notice is a prompt, not a substitute for engagement.

If the licence change proceeds, DNOs will no longer be required to publish standardised data on flexibility procurement. Any future visibility would depend on voluntary disclosure or ad hoc data requests, neither of which provides the consistent, comparable baseline that a licence obligation does.

Watch for the Ofgem decision letter. This will set out whether reporting is removed entirely, modified, or retained. The decision will signal Ofgem's broader approach to transparency in distribution network regulation — whether it prioritises reducing DNO administrative costs or maintaining the information infrastructure that enables competitive flexibility markets.

Wider context. This sits alongside Ofgem's ongoing work on the future of local flexibility markets, the Regional Energy Strategic Planners (RESPs) that will coordinate distribution-level planning, and the RIIO-ED2 mid-period review. If reporting requirements are removed now but flexibility procurement problems emerge later, reinstating them will be significantly harder than retaining them would have been.