Proposed licence conditions to support the operation of the market facilitator

What this is about

Ofgem is consulting on the licence conditions that will give the Market Facilitator role its teeth. Elexon is taking on a new statutory role: standardising the rules for local flexibility markets run by Distribution Network Operators, and aligning those rules with the national flexibility markets that NESO runs. The role is meant to be fully operational by end-2025. Standardisation is the point. Today a flexibility provider that wants to bid into multiple DNO areas faces different procurement rules, different product definitions, different settlement arrangements, and different data submission requirements in each one. The Market Facilitator is the mechanism Ofgem is using to fix that without forcing a full structural reorganisation of who runs which market.

The licence conditions are the binding part. Elexon as Market Facilitator does not have free-standing legal authority over the DNOs or NESO. Its authority comes from licence obligations that Ofgem imposes on the licensees, requiring them to comply with Flexibility Market Rules that Elexon will own and develop. This consultation is the design phase for those obligations. It is non-statutory, meaning it tests whether the drafting delivers the intended policy effect before Ofgem runs the statutory consultation in September 2025 and reaches a decision in December 2025. The proposed conditions go into the Standard Conditions of the Electricity Distribution Licence and the Electricity System Operator Licence.

Options on the table

The consultation document does not present a menu of structural alternatives. The structural decision (Elexon as facilitator, anchored by licence obligations on DNOs and NESO) was settled in the earlier policy framework consultation. What is on the table here is the drafting of two related sets of licence conditions, and the design choices embedded in that drafting.

Distribution Licence conditions

New conditions on the Standard Conditions of the Electricity Distribution Licence requiring DNOs to comply with the Flexibility Market Rules, and to provide data and information that the Market Facilitator reasonably requires to demonstrate compliance. The Flexibility Market Rules are not in the licence itself. They are a separate document, owned and developed by Elexon through working groups and consultations. The licence condition is the hook that makes Elexon's rules binding on the DNOs.

The structure resembles other code-governed obligations in GB energy: the licence requires compliance with a code, the code is amended through a defined process, and the regulator polices compliance. The winners are flexibility providers operating across multiple DNO areas, who get a single rulebook rather than fourteen variations. The losers, to the extent there are any, are DNOs that have built bespoke procurement processes they would prefer to keep, and any provider whose competitive advantage rests on knowing the bespoke quirks of a particular DNO market.

ESO Licence conditions

Two sets of conditions on the NESO licence. The first mirrors the distribution side: NESO must comply with the Flexibility Market Rules for services in scope, and provide data and information to the Market Facilitator. The second is more delicate. It defines how the Market Facilitator inputs into NESO's service design process for services in scope.

The delicacy comes from the fact that NESO already has established processes for amending existing services and introducing new ones. The Balancing Services governance structures, the Grid Code and CUSC modification processes, and NESO's own product development cycles all predate the Market Facilitator. The licence drafting has to give Elexon a meaningful role without cutting across these existing routes or duplicating their function. The consultation explicitly flags this as the area where it most needs feedback: whether the drafting recognises the existing processes correctly.

The winners here are flexibility providers who want consistency between local DNO products and national NESO products, so that the same asset can address both without needing to be configured twice. The losers, potentially, are participants who benefit from the current separation, including providers whose business models depend on arbitrage between inconsistent local and national products, and any incumbent process owner whose autonomy is curtailed.

Scope of "services in scope"

A secondary design choice runs through both sets of conditions: which flexibility services fall within the Market Facilitator's remit. The consultation document refers to "services in scope" without defining that scope in the licence drafting itself. The boundary is therefore being set somewhere else, presumably in the Flexibility Market Rules or in an accompanying scope document. The breadth of that definition will determine whether the Market Facilitator is a thin standardisation layer over a narrow set of products, or a substantive cross-market coordinator. This is worth probing in responses, because the scope question is where the structural impact actually lives.

Questions being asked

Ofgem has not published a numbered list of consultation questions in the page text. The non-statutory consultation document (a 293KB PDF) and the two subsidiary licence drafting documents will contain the specific questions. Based on the framing of the page text, the questions will cluster around the following themes.

Drafting fidelity to policy intent

Whether the proposed licence drafting accurately delivers the policy intent set out in the earlier Market Facilitator policy framework consultation. This is the headline question for a non-statutory consultation: does the legal text do what the policy says it should do. Respondents are being asked to flag drafting that overshoots, undershoots, or creates unintended consequences relative to the previously consulted policy.

Interaction with existing NESO service design processes

Whether the ESO Licence drafting on Market Facilitator input into service design correctly recognises and works alongside existing processes for amending and introducing services. This is the area Ofgem has explicitly flagged for feedback. The substantive question is whether the drafting creates a workable interface or a procedural conflict. Respondents close to the Balancing Services governance, the code modification processes, or NESO's product development will have the most useful evidence here.

Compliance and information obligations

Whether the obligations on licensees to provide data and information "as reasonably required by the market facilitator to demonstrate their compliance" are correctly framed. The word "reasonably" is doing a lot of work. The question is whether the threshold is high enough to prevent unbounded information requests, and low enough to give the Market Facilitator the visibility it needs to police compliance. The answer matters for DNO and NESO operating costs, and for the credibility of the Market Facilitator's compliance function.

Scope of the Flexibility Market Rules

Whether the licence drafting sets the right boundary on what the Flexibility Market Rules can cover, and how that boundary interacts with other rulebooks (the Distribution Code, the Grid Code, the Balancing and Settlement Code, CUSC). Flexibility products touch multiple existing codes. The licence condition needs to define where Elexon's rules sit in that stack without creating overlapping or conflicting obligations.

Enforcement and amendment

Whether the proposed conditions create a workable enforcement regime, and whether the process for amending the Flexibility Market Rules (which Elexon will own and develop "collaboratively through working groups and consultations") is robust enough to satisfy due process expectations. The licence condition will bind DNOs and NESO to rules that a third party writes. The amendment process is therefore part of the obligation, not separate from it.

How to respond

The consultation closed on 8 August 2025. Status is "Closed (with decision)" on the Ofgem page, meaning the response window is no longer open and Ofgem has moved through the subsequent stages.

For context on the follow-through: Ofgem indicated at publication that it would run a statutory consultation in September 2025, followed by a decision in December 2025. The Market Facilitator was due to be fully operational by end-2025, and Elexon went live in that role on the timeline Ofgem set out.

Anyone now reading this should treat the consultation as part of the audit trail for the Market Facilitator's licence framework rather than a live opportunity to intervene. The current operational documents to track are the Flexibility Market Rules themselves (owned by Elexon), the statutory consultation response and decision documents Ofgem published in late 2025, and the working group outputs through which the rules are amended.

The original consultation documents remain available on the Ofgem page:

- Non-statutory consultation on proposed licence conditions to support the operation of the market facilitator (293KB PDF) - Distribution Licence market facilitator licence condition: non-statutory consultation (54KB PDF) - ESO Licence market facilitator licence condition: non-statutory consultation (58KB PDF)

The related Market facilitator policy framework consultation is linked from the same page and provides the policy backdrop against which the licence drafting was tested.