Virtual Trading Party activity builds through winter 2025-26, adding upward pressure to power costs

Changing access for customer flexibility in the wholesale market

Previously, customers could only use their supplier’s services to access wholesale market value. If the supplier didn’t offer flexibility services in the wholesale market, the customer couldn’t participate in them. They could only use independent aggregators - known as Virtual Lead Parties (VLPs) - for balancing mechanism and/or ancillary services participation. Adding the role of VTPs allows aggregators to trade customers’ flexibility on the wholesale market and means that customers can diversify revenues from flexibility.

Customers can do this by load shifting, which involves responding to price signals in the wholesale market and using less electricity at high-cost periods. This difference between the demand volume baseline and what was actually consumed due to a VTP action is called deviation volume. The demand volume baseline is an average over recent history, calculated for each settlement period. Therefore, if a customer reduces their consumption during a high-cost period at a VTP’s instruction, they create a deviation volume which VTPs can then sell on the wholesale market.

Compensation of costs for suppliers

Suppliers buy electricity ahead of time to meet the customer’s forecasted demand. When VTPs sell flexibility volumes on a customer’s behalf, and customers respond by reducing demand during peak periods, the customer’s consumption changes. This results in the supplier having over-procured electricity that it’s unable to sell to the customer. The supplier can receive compensation for this over-procurement cost from a mutualisation pot. All suppliers pay into this pot based on their market share and Elexon redistributes the mutualised fund to suppliers based on VTP activity on their portfolios.

This additional payment into the mutualisation fund adds upward pressure to the costs that suppliers face when providing customers with power. While charges have historically been very small, they’re beginning to make a material impact on electricity bill composition.

How have costs evolved since P415?

Following the implementation of P415, VTP accreditation and activity was initially slow to increase. As shown by the graph below, the compensation paid rose more rapidly from October 2025 onwards, reflecting an increase in VTP activity over Q4 2025. January 2026 has shown the highest level of VTP activity so far, with compensation reaching over £5,400,000.

Source: Elexon

Note: Data for February 2026 covers 1st-16th due to data collection part way through February.

The increase in VTP activity is a positive step for companies that can flexibly operate. However, these increased supplier costs need to be recovered via customer bills. As the charge grows and suppliers can no longer absorb the additional costs, it’s likely to add another line item to third party costs (TPCs) on the power bill. Based on our internal data, the graph below indicates an estimation of the costs per MWh that customers have paid over the past year. This rose from below £0.10/MWh for the majority of 2025 to £0.20/MWh in January 2026 and then increased further to approximately £0.24/MWh in February based on the latest available data.

Source: Elexon and Drax

Note: Data for February 2026 covers 1st-16th due to data collection part way through February.

As more parties pass the VTP accreditation process and activity ramps up, we expect to see these costs increase further. Our analysis suggests costs could rise to around £0.50/MWh over time. However, it’s challenging to predict exactly how much customers will utilise services provided by VTPs and what the exact costs will be.

Additionally, on 5 March 2026, Elexon announced Flexitricity’s proposed code modification P510 Introducing Direct Compensation for Virtual Trading Party actions in the Wholesale Market. This code modification seeks to change the compensation arrangement for suppliers, removing the mutualisation pot and implementing direct compensation. By introducing direct compensation, it aims to improve revenue certainty and incentivise participation in the wholesale market. However, the modification, which would remove the mutualised costs, is in its early stages and it will likely be several months before Ofgem is in a position to decide whether or not to implement it.

If you’re a Drax customer and considering ways to improve your organisation’s sustainability, such as flexibility measures, take a look at our Sustainability Hub for more guidance and information. We’ve broken sustainability down into manageable stages and, at each step, provide practical support. The Hub includes guides, blogs and videos — plus clear explanations of the options available, how they help, and how businesses can implement them.

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