1. Introduction

Local flexibility procurement refers to the process through which a Distribution System Operator (DSO) or Distribution Network Operator (DNO) obtains services from distributed energy resources (DERs) to manage local electricity-network constraints.

Instead of solving every network problem by constructing new substations, transformers or cables, the network operator can procure flexibility from:

• battery storage;
• distributed renewable generators;
• demand-response customers;
• electric-vehicle charging systems;
• commercial and industrial consumers;
• aggregators;
• flexible heat pumps and buildings; and
• other controllable loads or generation.

The basic idea is that a network operator pays a market participant to increase generation, reduce consumption, increase consumption, or discharge storage at a particular location and time.

The legal significance of this mechanism is that flexibility procurement transforms distribution networks from predominantly passive infrastructure into market-enabled and actively managed systems.

In Great Britain, this approach is particularly developed. Ofgem's Standard Licence Condition 31E governs when distribution licensees may procure flexibility, the principles governing procurement, coordination with other parties, and reporting requirements. Ofgem states that SLC 31E was introduced in December 2020 and implements the flexibility principles of Article 32 of the EU Clean Energy Package in the GB framework. Ofgem

2. Meaning of Flexibility Procurement

A simple example illustrates the mechanism.

Suppose a distribution transformer normally has a capacity of 10 MW. During winter evenings, local electricity demand may reach 11 MW because of electric heating and EV charging.

The DSO has two possible approaches:

Traditional approach

Build a larger transformer or reinforce the network.

Flexibility approach

Contract batteries, EV chargers, industrial consumers or generators to reduce the local net demand by 1 MW during the relevant periods.

The DSO therefore purchases a network service, rather than merely purchasing electricity.

This distinction is important. Flexibility procurement is principally concerned with where and when electricity is produced or consumed.

3. Legal Foundation

A. EU Electricity Directive 2019/944

The principal European legal provision is Article 32 of Directive (EU) 2019/944.

Article 32 requires Member States to establish a regulatory framework that enables and incentivises DSOs to procure flexibility services, including congestion management.

It specifically contemplates services from:

• distributed generation;
• demand response;
• energy storage; and
• energy-efficiency measures.

The procurement should generally be conducted through transparent, non-discriminatory and market-based procedures, subject to exceptions where procurement would not be economically efficient or would create serious market distortions. Eur-Lex

Thus, the legal model has four fundamental principles:

1. Transparency
2. Non-discrimination
3. Market-based procurement
4. Economic efficiency

4. British Regulatory Framework

Although the United Kingdom has left the EU, the principles of Article 32 were incorporated into the GB regulatory framework through Standard Licence Condition 31E.

Ofgem explains that SLC 31E determines:

• when distribution licensees may procure flexibility;
• principles applicable to procurement;
• coordination requirements;
• annual procurement statements;
• annual procurement reports; and
• publication of tender outcomes. Ofgem

The regulatory framework therefore attempts to prevent DSOs from using their network position to create an opaque or discriminatory market.

5. Main Local Flexibility Procurement Mechanisms

A. Competitive Tendering

The most common mechanism is a competitive flexibility tender.

The DSO identifies a network constraint and publishes:

• location;
• required capacity;
• required response time;
• duration;
• availability periods;
• minimum technical requirements;
• utilisation requirements; and
• payment structure.

Flexibility providers then submit bids.

The DSO evaluates the bids against technical and economic criteria.

For example:

This model is designed to reveal the market price of flexibility.

UK Power Networks, for example, currently uses long-term tenders and day-ahead auctions for flexibility services. Its current framework includes long-term scheduled utilisation, scheduled availability with operational utilisation, and day-ahead scheduled utilisation. UKPN DSO

6. Long-Term Flexibility Contracts

A DSO may procure flexibility several years in advance.

This is useful where the operator expects a future network constraint.

For example:

A new housing development is expected to create a 5 MW capacity problem from 2028 onward.

Rather than immediately constructing reinforcement, the DSO may contract:

• 2 MW battery storage;
• 1 MW industrial demand response; and
• 2 MW EV charging flexibility.

The contracts may provide:

• availability payments;
• utilisation payments;
• minimum performance obligations;
• penalties for non-delivery; and
• contract termination provisions.

This mechanism can therefore function as a form of non-wire alternative (NWA) to conventional infrastructure investment.

7. Day-Ahead and Short-Term Procurement

Long-term contracts are not the only mechanism.

DSOs increasingly use shorter procurement periods.

UK Power Networks states that it introduced regular day-ahead flexibility auctions from April 2024. UKPN DSO

Short-term procurement is useful because the DSO can respond to:

• changing demand;
• renewable generation;
• weather conditions;
• EV charging patterns;
• unexpected network constraints; and
• changing market conditions.

The legal advantage is also that short-term markets can increase participation by assets that cannot make multi-year commitments.

8. Availability and Utilisation Payments

A particularly important procurement mechanism is the separation between availability and utilisation payments.

Availability payment

The provider is paid for keeping the resource available.

Example:

A battery receives £X/MW for being available between 5 pm and 8 pm.

Utilisation payment

The provider receives an additional payment when the DSO actually activates the flexibility.

Example:

The battery receives £Y/MWh when dispatched.

This structure allocates risk between the DSO and provider.

It also encourages resources to remain available without requiring the DSO to dispatch them unnecessarily.

UK flexibility-market practice has commonly used availability and utilisation payments for contracted services. Energy Storage Europe

9. Flexibility Auctions

Another mechanism is an auction-based market.

Providers submit bids such as:

1 MW reduction — £80/MWh

2 MW battery discharge — £100/MWh

The DSO then selects qualifying bids according to the relevant market rules.

Auction mechanisms can provide:

• price discovery;
• competition;
• transparent selection;
• greater liquidity; and
• potentially lower procurement costs.

However, auction design must account for the fact that local flexibility markets are geographically constrained. Ofgem has noted that flexibility markets are inherently geographically constrained and that liquidity and market access remain important issues. Ofgem

10. Aggregator-Based Procurement

Small customers may individually possess insufficient flexibility to participate directly.

For example:

• household A = 5 kW;
• household B = 7 kW;
• household C = 8 kW;
• household D = 6 kW.

An aggregator can combine them into a larger flexible portfolio.

The DSO can then procure, for example:

26 kW aggregated demand response.

This is legally significant because otherwise minimum participation thresholds could exclude households and small businesses.

UK Power Networks expressly permits participation through third parties for customers and assets that cannot independently satisfy its participation requirements. UKPN DSO

11. Technology-Neutral Procurement

A sound flexibility procurement framework should generally avoid specifying a particular technology unless technically necessary.

The DSO should ideally define the network service required, rather than saying:

"We need a battery."

Instead, it should say:

"We require 2 MW upward flexibility for two hours between 18:00 and 20:00."

Possible solutions could then include:

• batteries;
• demand response;
• solar-plus-storage;
• EV charging management;
• generators; or
• aggregated consumers.

This promotes technological competition.

UK Power Networks describes its flexibility service as technology agnostic. UKPN DSO

12. Locational Procurement

Local flexibility differs from ordinary electricity-market procurement because location matters.

A 10 MW battery in London cannot necessarily solve a constraint in Manchester.

Consequently, procurement normally identifies specific:

• substations;
• feeders;
• constraint zones;
• voltage areas; or
• geographic flexibility zones.

This creates what can be called a locational flexibility market.

The legal consequence is that competition cannot always be assessed as a national market. The relevant market may consist of only a limited number of technically capable providers in a particular location.

13. Procurement Through Independent Platforms

Digital platforms can make procurement more transparent.

Platforms may provide:

1. publication of network requirements;
2. registration of assets;
3. technical prequalification;
4. bid submission;
5. contract management;
6. dispatch;
7. settlement; and
8. performance measurement.

Earlier UK flexibility arrangements used platforms such as Piclo Flex, while DNOs have also developed other digital procurement arrangements. Ofgem

The platform therefore becomes part of the institutional infrastructure of the local flexibility market.

14. Prequalification Mechanisms

Before a provider can bid, the DSO normally needs to verify:

• connection location;
• capacity;
• response time;
• ramp rate;
• availability;
• minimum duration;
• telemetry;
• metering;
• dispatch capability; and
• technical compliance.

This prevents a provider from winning a contract that it cannot physically deliver.

However, excessively demanding prequalification requirements can create barriers to entry.

Therefore, procurement law must balance:

system reliability

against

market accessibility.

15. Baseline and Measurement Rules

Demand response creates a difficult legal and technical question:

How do we determine what the customer would have consumed without the flexibility intervention?

This is the baseline problem.

Suppose a factory normally consumes 5 MW but reduces consumption to 3 MW after a DSO instruction.

The flexibility delivered is potentially:

5 MW − 3 MW = 2 MW.

But the factory might have independently reduced consumption because of production changes.

Therefore, the market needs rules for:

• baseline calculation;
• metering;
• verification;
• settlement;
• performance;
• penalties; and
• dispute resolution.

Without reliable measurement rules, flexibility procurement can become vulnerable to manipulation and disputes.

16. Coordination Between DSO and National System Operator

Local flexibility cannot be treated as completely independent from national electricity markets.

A battery could potentially provide:

• DSO congestion management;
• national balancing;
• frequency response;
• wholesale-market services.

The same asset therefore has multiple possible revenue streams.

This creates the issue of stacking.

The regulatory framework must determine:

• whether multiple services can be provided simultaneously;
• which service receives priority;
• how conflicts are resolved;
• how dispatch is coordinated; and
• who bears the cost of conflicting instructions.

Ofgem's current policy framework recognises the need for coordination between local and national flexibility arrangements. Its 2025 market-facilitator decision appointed Elexon to coordinate local and national flexibility-market arrangements. Ofgem

17. Transparency Requirements

Transparency is fundamental to lawful procurement.

A DSO should publish sufficient information regarding:

• procurement requirements;
• eligibility;
• technical requirements;
• bidding rules;
• evaluation criteria;
• successful bids;
• contracted capacity; and
• utilisation.

Ofgem's SLC 31E framework specifically requires annual procurement statements and reports and publication of tender outcomes. Ofgem

This creates an audit trail that enables regulators and market participants to examine whether procurement has been conducted fairly.

18. Non-Discrimination

Because a DSO controls an essential network, it possesses significant market power.

It must therefore avoid discriminatory procurement.

For example, a DSO should not arbitrarily favour:

• its affiliated company;
• a particular technology;
• a particular aggregator; or
• a particular supplier.

The principle is particularly important where the network operator has relationships with companies participating in flexibility markets.

The European framework expressly requires procurement to be transparent, non-discriminatory and market-based. Eur-Lex

19. Economic Efficiency Test

Flexibility should not automatically replace network reinforcement.

Suppose:

Network reinforcement cost = £10 million

while:

Flexibility contracts over the relevant period = £15 million.

In such circumstances, flexibility may not be economically efficient.

Article 32 therefore recognises exceptions where flexibility procurement is not economically efficient or could create severe market distortions or higher congestion. Eur-Lex

The regulator must consequently consider the whole-life cost of:

• conventional reinforcement;
• flexibility procurement;
• operational risk;
• reliability;
• uncertainty;
• future demand;
• contract duration; and
• asset utilisation.

20. Relevant Case Law

Direct reported judicial decisions specifically concerning local flexibility procurement remain relatively limited because the regulatory regime is comparatively new. Consequently, the most useful authorities are cases concerning electricity-market regulation, Ofgem's statutory discretion, network access and non-discrimination.

Case 1: R (UK Power Networks Services (Contracting) Ltd) v GEMA

This case concerned the interpretation of electricity distribution-system arrangements and third-party access obligations.

The Administrative Court held that GEMA had erred in interpreting the relevant "system" so as to require only one distribution exemption holder per network. Counsel Magazine

Relevance to flexibility procurement

The case illustrates an important principle:

Electricity-network regulation must be based on the proper statutory and regulatory construction of the network arrangement rather than an unnecessarily restrictive institutional interpretation.

For local flexibility markets, this supports careful legal analysis of:

• who controls network assets;
• who can participate;
• access rights;
• licensing exemptions; and
• the scope of DSO responsibilities.

21. R (Peak Gen Top Co Ltd and Others) v GEMA

This case concerned Ofgem's approval of changes to electricity network-use-of-system charging methodology.

The applicants argued that Ofgem had failed to consider relevant effects on small embedded generators and alleged discrimination.

The Administrative Court rejected the challenge and upheld the regulator's decision. Counsel Magazine

Relevance

This authority is useful because flexibility markets similarly involve:

• embedded generation;
• network charging;
• distributed resources;
• competition between technologies; and
• non-discrimination.

It demonstrates that regulatory decisions concerning technical electricity-market methodologies receive substantial judicial deference where the regulator has considered the relevant technical and economic factors.

22. R (ScottishPower Energy Retail Ltd) v GEMA [2022] EWHC 37 (Admin)

This case concerned Ofgem's regulatory decision-making in the electricity market.

The High Court recognised the specialist nature of Ofgem's regulatory functions and discussed the appropriate standard of judicial review in the context of technical market regulation. BAILII

Relevance to local flexibility

Flexibility procurement involves highly technical questions concerning:

• network constraints;
• costs;
• market design;
• consumer interests;
• system security; and
• commercial incentives.

Accordingly, the case illustrates why courts generally do not substitute their own economic judgment for that of a specialist regulator where the regulator has acted within its statutory powers and followed a rational decision-making process.

23. SSE Generation Ltd v CMA [2022] EWCA Civ 1472

The Court of Appeal considered the operation of the GB electricity market and the relationship between system balancing, network operation and regulatory arrangements.

The judgment describes the balancing mechanism through which the system operator can buy or sell additional energy close to real time and manage system constraints. BAILII

Relevance

The case helps explain the broader legal architecture in which local flexibility operates.

A flexibility market cannot be isolated from:

wholesale markets → balancing markets → transmission constraints → distribution constraints.

Consequently, local procurement rules must be coordinated with national system operation.

24. Electricity North West Ltd – Ofgem Enforcement Case

Although not a court judgment, Ofgem's enforcement action against Electricity North West is an important regulatory authority.

Ofgem found breaches concerning obligations to provide connection offers within the required regulatory time limits and imposed a £100,000 penalty. Ofgem

Relevance

The case demonstrates that distribution companies are not free to administer network processes according to purely commercial preferences.

Their licence obligations are enforceable regulatory obligations.

The same principle applies to flexibility procurement:

procurement procedures, reporting obligations and network-access requirements must comply with the applicable licence conditions.

25. Legal Problems in Local Flexibility Procurement

Several legal issues arise.

1. Market power

The DSO controls an essential facility and may have monopsony power as the principal buyer of local flexibility.

2. Discrimination

The DSO could theoretically favour particular technologies or market participants.

3. Transparency

Providers need sufficient information to submit meaningful bids.

4. Confidentiality

Commercially sensitive bids must be protected.

5. Aggregation

The law must accommodate small DERs without creating excessive administrative burdens.

6. Contract enforcement

Contracts must establish consequences for non-performance.

7. Double procurement

The same flexibility should not be unnecessarily procured by both the DSO and national system operator.

8. Revenue stacking

Rules must determine how a single asset can participate in several markets.

9. Consumer protection

Household demand response must not compromise vulnerable consumers' access to electricity.

10. Data governance

Smart-meter and DER data must be handled consistently with applicable privacy and cybersecurity requirements.

26. India: Relevance of the Concept

India does not yet have an equivalent local-flexibility procurement regime as developed as GB's SLC 31E framework.

However, the concept is increasingly relevant because Indian distribution systems are experiencing:

• rooftop solar growth;
• battery storage;
• EV charging;
• smart meters;
• demand response;
• time-of-day tariffs; and
• increasing distribution-level congestion.

The Electricity Act, 2003 provides the broader statutory framework for distribution licensing, electricity markets and regulatory supervision, while CERC and SERC regulations provide more detailed market and tariff mechanisms.

CERC's current regulatory framework also includes evolving rules concerning deviation settlement, renewable integration and competitive procurement. CERC India

A future Indian local-flexibility framework could therefore develop through:

1. SERC regulations;
2. DISCOM flexibility procurement;
3. aggregator licensing;
4. time-of-use tariffs;
5. demand-response programmes;
6. battery-storage participation;
7. EV smart-charging programmes; and
8. competitive procurement of distribution-level flexibility.

27. Model Legal Framework

A mature local flexibility procurement statute or regulation could contain the following structure:

Chapter I — Definitions

• flexibility;
• DER;
• aggregator;
• DSO;
• flexibility provider;
• congestion;
• flexibility zone.

Chapter II — Procurement Duty

DSOs must assess whether flexibility is economically and technically appropriate before network reinforcement.

Chapter III — Market Rules

Procurement should be:

• transparent;
• competitive;
• technology neutral;
• non-discriminatory.

Chapter IV — Participation

Rules should permit:

• generators;
• consumers;
• storage;
• EVs;
• aggregators;
• community energy systems.

Chapter V — Contracts

Rules should establish:

• duration;
• payment;
• availability;
• utilisation;
• performance;
• penalties;
• termination.

Chapter VI — Coordination

Rules should coordinate:

• DSO;
• transmission/system operator;
• suppliers;
• aggregators;
• flexibility platforms.

Chapter VII — Regulatory Oversight

The regulator should have powers to:

• approve procurement methodologies;
• investigate complaints;
• require information;
• review discriminatory practices; and
• impose penalties.

28. Conclusion

Local flexibility procurement represents a fundamental shift from network reinforcement by infrastructure alone toward a combination of infrastructure and market-based operational solutions.

Its central legal principle is that a DSO should be able to obtain flexibility from distributed resources through transparent, non-discriminatory and market-based procedures, while retaining the ability to use conventional reinforcement where flexibility is technically or economically inappropriate. Article 32 of Directive 2019/944 provides the key European legal model, while Great Britain's SLC 31E provides a practical regulatory implementation. Eur-Lex

The most important procurement mechanisms include competitive tenders, long-term contracts, day-ahead auctions, availability and utilisation payments, aggregator participation, locational procurement and digital flexibility platforms. Current GB practice demonstrates that these mechanisms can be integrated into DSO network planning and operation. UKPN DSO

From a legal perspective, the critical safeguards are transparency, non-discrimination, technology neutrality, economic-efficiency assessment, coordination between DSO and national markets, reliable measurement, contractual enforceability and regulatory oversight.

The developing British experience therefore provides a useful model for jurisdictions such as India that are moving toward smart distribution networks, distributed renewable generation, storage, EVs and demand-side participation.

Key authorities: Article 32, Directive (EU) 2019/944; GB Electricity Distribution Standard Licence Condition 31E; R (UK Power Networks Services (Contracting) Ltd) v GEMA; R (Peak Gen Top Co Ltd v GEMA); R (ScottishPower Energy Retail Ltd) v GEMA [2022] EWHC 37 (Admin); SSE Generation Ltd v CMA [2022] EWCA Civ 1472; and Ofgem's enforcement decision concerning Electricity North West.