1. Introduction

Local flexibility procurement is a regulatory and market mechanism through which electricity distribution network operators (DSOs/DNOs) obtain flexibility services from distributed energy resources (DERs) located within specific parts of the distribution network. Instead of relying exclusively on conventional network reinforcement—such as installing larger transformers, upgrading substations, or constructing new lines—the network operator can contract with consumers, generators, battery operators, aggregators, electric-vehicle operators, and other flexible resources to modify electricity consumption or generation when and where the network requires it.

The concept has become increasingly important because electrification of transport, heating, distributed renewable generation, batteries and flexible demand creates locational network constraints. A resource that is valuable at one location may have little or no value at another.

In Great Britain, Ofgem's Standard Licence Condition 31E provides a particularly developed legal framework. It requires distribution licensees, where economically and efficiently appropriate, to procure distribution flexibility services and generally to use objective, transparent and market-based procedures. Legislation.gov.uk

At EU level, Article 32 of Directive (EU) 2019/944 requires Member States to establish a framework enabling DSOs to procure flexibility, including congestion-management services, through transparent, non-discriminatory and market-based procedures, subject to specified exceptions. Eur-Lex

2. Meaning of Local Flexibility

Flexibility means the ability of an electricity resource to change its electricity consumption, generation, storage or export/import pattern in response to a system requirement.

For example:

• an industrial consumer can reduce demand;
• a battery can charge or discharge;
• an EV charging network can postpone charging;
• a heat pump can shift electricity consumption;
• a distributed generator can increase or reduce output;
• an aggregator can coordinate thousands of small consumers.

The word "local" is crucial.

Suppose a particular substation is expected to become overloaded between 5:00 p.m. and 7:00 p.m. The DSO may procure 5 MW of demand reduction specifically from resources electrically connected within that constrained area.

A 5 MW battery located 100 kilometres away may not solve that local problem because electricity-network constraints are geographically dependent.

Thus:

Local flexibility procurement = procurement of geographically targeted changes in electricity consumption, generation or storage to manage a distribution-network requirement.

3. Why Network Operators Procure Flexibility

Traditional electricity distribution regulation was largely based on network reinforcement.

Where demand increased, the traditional response was:

Demand growth → identify constraint → build reinforcement → recover cost through regulated charges.

Flexibility introduces an alternative:

Demand growth → identify constraint → assess flexible resources → procure flexibility → defer or avoid reinforcement where economically efficient.

The EU framework expressly recognises flexibility, demand response, energy storage and energy efficiency as possible alternatives to conventional network expansion. Eur-Lex

This can provide several benefits:

(a) Deferral of reinforcement

A DSO may postpone construction of a new transformer or cable if flexibility can manage the constraint during peak periods.

(b) Lower system costs

If flexibility is cheaper than immediate reinforcement, consumers may benefit from avoiding unnecessary capital expenditure.

(c) Integration of renewable energy

Solar and wind generation can create local network constraints. Flexibility can help absorb excess generation or modify demand.

(d) EV integration

Large-scale EV charging can produce highly concentrated local demand.

(e) Consumer participation

Consumers become potential providers of network services rather than merely passive electricity users.

4. Legal Framework in Great Britain

The British framework is one of the clearest examples of legal institutionalisation of local flexibility procurement.

Ofgem introduced Standard Licence Condition 31E in December 2020. Ofgem states that the condition implements the flexibility provisions associated with Article 32 of the EU Clean Energy Package in GB regulation. Ofgem

The condition requires the distribution licensee to:

1. procure flexibility where economically and efficiently appropriate;
2. procure it in the most economic manner possible;
3. generally use objective, transparent and market-based procedures;
4. avoid discrimination between potential providers;
5. coordinate with relevant parties;
6. consider future electricity requirements;
7. report procurement activities to Ofgem.

The legislation expressly states that the licensee must procure distribution flexibility services in an efficient and coordinated manner. Legislation.gov.uk

5. Market-Based Procurement

A central principle is that flexibility should normally be obtained through competitive procurement.

The network operator identifies a requirement such as:

Location: Substation A
Constraint: evening peak demand
Required flexibility: 3 MW
Availability: November–February
Duration: 2 hours
Response time: 30 minutes

Potential providers can then submit bids.

The DSO can compare:

• availability;
• capacity;
• response time;
• duration;
• reliability;
• price;
• location;
• technical characteristics.

The cheapest bid is not necessarily automatically sufficient because the service must actually solve the network constraint.

Therefore, procurement involves both economic and engineering evaluation.

6. Non-Discrimination

Non-discrimination is particularly important because a DSO is generally a regulated monopoly in its network area.

It could theoretically favour:

• an affiliated company;
• a particular technology;
• large generators;
• incumbent providers.

The legal framework therefore requires procurement to be conducted on objective and transparent terms.

GB regulation specifically provides that, after taking relevant price and technical differences into account, the licensee must not discriminate between persons or classes of persons in the procurement or use of distribution flexibility services. Legislation.gov.uk

This is essential for allowing:

• batteries;
• demand response;
• aggregators;
• renewable generators;
• commercial consumers;
• domestic flexibility providers

to participate on comparable terms.

7. Technology Neutrality

Local flexibility procurement should generally focus on the service required, rather than prescribing the technology that must provide it.

For example, if a DSO requires:

2 MW demand reduction for two hours,

the procurement framework can allow:

• batteries;
• industrial demand response;
• commercial refrigeration;
• EV charging management;
• heat pumps;
• distributed generation.

UK Power Networks describes its flexibility service as technology agnostic, allowing resources that can change their electricity-use pattern to participate, subject to location and technical requirements. UKPN DSO

Technology neutrality encourages competition and innovation.

8. Procurement Process

A typical local flexibility procurement process can be divided into several stages.

Stage 1: Network forecasting

The DSO forecasts:

• demand;
• distributed generation;
• EV adoption;
• heat-pump deployment;
• battery penetration;
• network loading.

Stage 2: Constraint identification

The operator identifies:

• thermal constraints;
• voltage problems;
• reverse power flows;
• congestion;
• transformer limitations.

Stage 3: Flexibility assessment

The DSO determines whether flexibility can provide an economically viable alternative to reinforcement.

Stage 4: Market announcement

The DSO publishes:

• location;
• required capacity;
• duration;
• availability;
• response requirements;
• contract period;
• procurement rules.

Stage 5: Competitive bidding

Providers submit offers.

Stage 6: Evaluation

The DSO evaluates the bids according to predetermined criteria.

Stage 7: Contracting

Successful providers enter flexibility-service agreements.

Stage 8: Dispatch

When the network constraint arises, the DSO calls the contracted flexibility.

Stage 9: Measurement and settlement

Actual performance is measured and providers are paid according to contractual terms.

9. Flexibility Products

Local flexibility can be procured for different network requirements.

(a) Capacity flexibility

A provider commits to make a specified amount of capacity available.

(b) Constraint management

The DSO activates flexibility to prevent network overload.

(c) Voltage management

Flexible resources can help maintain voltage within permitted limits.

(d) Demand reduction

Consumers reduce electricity consumption during constrained periods.

(e) Demand increase

In some circumstances, increasing demand can also be valuable—for example, consuming excess local renewable generation.

(f) Storage flexibility

Batteries can shift electricity consumption and generation across time.

(g) Long-term flexibility

A DSO can contract flexibility several years in advance where future network requirements are predictable.

10. Flexibility as an Alternative to Network Reinforcement

This is perhaps the most important legal-economic feature.

Suppose a DSO expects a transformer to exceed its capacity for only 50 hours annually.

Traditional reinforcement might involve a major capital project.

Flexibility could instead be procured for those 50 hours.

The decision becomes:

Cost of reinforcement

versus

Present value of flexibility procurement + transaction + operational costs.

If flexibility is sufficiently reliable and cheaper, the DSO may defer reinforcement.

Ofgem's RIIO-ED2 reporting framework expressly recognises flexibility dispatched for the deferral of reinforcement and requires reporting of the counterfactual reinforcement capacity that has been deferred. Ofgem

11. EU Legal Framework: Article 32

Article 32 of Directive (EU) 2019/944 is particularly important.

It requires Member States to provide a regulatory framework enabling DSOs to procure flexibility services, including congestion management.

The procurement framework should generally be:

• transparent;
• non-discriminatory;
• market-based.

The Article also recognises flexibility from:

• distributed generation;
• demand response;
• energy storage.

It further requires coordination between DSOs and transmission system operators and provides for transparent and participatory processes concerning flexibility-service specifications. Eur-Lex

The legal significance is that flexibility is no longer merely an experimental technical concept. It becomes part of the regulated legal architecture of electricity distribution.

12. Coordination Between DSO and TSO

A major legal issue arises when the same resource can provide services to both:

• the distribution system; and
• the transmission system.

For example, a battery could be contracted by the DSO for local congestion management while simultaneously participating in a national balancing market.

Without coordination, conflicting instructions could occur.

Article 32 therefore requires DSOs to exchange necessary information and coordinate with transmission system operators. Eur-Lex

This creates the concept of market primacy and coordination rules.

Recent GB reforms illustrate this issue. Ofgem's 2026 decision concerning the Demand Flexibility Service includes arrangements intended to prevent conflicts between local DNO actions and transmission-level actions. Ofgem

13. Transparency and Reporting

Flexibility procurement cannot operate effectively without transparency.

Ofgem requires annual procurement statements and reports under SLC 31E.

The procurement statement identifies what flexibility the licensee intends to procure during the coming regulatory year.

The procurement report identifies flexibility that has been:

• tendered;
• contracted;
• dispatched.

Ofgem also requires publication of procurement outcomes after contracts are agreed. Ofgem

This creates regulatory accountability and allows market participants to understand where future opportunities exist.

14. Exceptions to Market-Based Procurement

Market-based procurement is important, but it is not absolute.

GB regulation permits Ofgem to grant a derogation where market-based procurement would:

1. be economically inefficient; or
2. produce severe market distortions or higher levels of constraints.

The DSO must provide appropriate justification when requesting such a derogation. Legislation.gov.uk

This reflects an important regulatory principle:

Competition is the default, but economic and technical realities may justify an alternative procurement method.

15. Case Laws and Legal Authorities

Because local flexibility procurement is a relatively new regulatory field, there are few reported court judgments directly deciding the legality of a DNO flexibility tender. Consequently, the strongest authorities are often regulatory decisions, statutory instruments and broader electricity-market cases.

Case/Authority 1: British Gas Trading Ltd & Others v Secretary of State for Energy Security and Net Zero

[2025] EWCA Civ 209

The Court of Appeal decision concerned challenges relating to the electricity-market regulatory framework rather than a direct dispute over a local flexibility tender. Courts and Tribunals Judiciary

Its relevance to flexibility procurement lies in the broader legal principle that electricity-market regulation operates through statutory powers, regulatory duties and licence-based obligations. This reinforces the importance of ensuring that flexibility procurement decisions remain within the legal authority granted to the network operator and regulator.

Case/Authority 2: Ofgem – CLASS Decision

Ofgem's decision concerning Customer Load Active System Services (CLASS) is particularly relevant to the boundary between network-operation functions and competitive flexibility markets.

Ofgem decided in 2022 to continue allowing DNOs to provide CLASS to the Electricity System Operator as a balancing service under RIIO-ED2, with remuneration through the relevant regulatory mechanism. Ofgem

The decision demonstrates that the regulatory treatment of network-owned or network-controlled flexibility assets must be carefully separated from competitive procurement.

It raises an important legal question:

When should a network operator procure flexibility from the market, and when can it use a regulated network capability itself?

Case/Authority 3: EU Article 32 – Directive 2019/944

Although not a judicial case, Article 32 is a major legal authority for local flexibility procurement.

It establishes:

• DSO flexibility procurement;
• market-based procedures;
• non-discrimination;
• transparency;
• participation of demand response;
• storage participation;
• coordination with TSOs;
• flexibility as an alternative to network expansion. Eur-Lex

For academic analysis, this provision is arguably more directly relevant than older electricity cases because it specifically addresses DSO flexibility.

16. UK Regulatory Development

The regulatory framework continues to develop.

Ofgem's 2026–27 procurement statements show that SLC 31E remains an active part of DSO regulation. Ofgem

At the operational level, National Grid's DSO announced a September 2026 long-term flexibility procurement round covering more than 800 zones, with a flexibility requirement exceeding 2.8 TWh and a potential market opportunity of up to £4.6 million. It also introduced Local Voltage Management as a new flexibility service in that procurement round. Distribution System Operator (DSO)

This illustrates the movement from experimental flexibility projects toward routine regulated procurement.

17. Legal Issues in Local Flexibility Procurement

Several important legal questions arise.

17.1 Competition

How can regulators ensure that procurement is genuinely competitive?

17.2 Transparency

How much information should the DSO disclose concerning:

• network constraints;
• bids;
• prices;
• winning providers?

17.3 Conflicts of interest

A DSO that owns flexibility assets could potentially compete against independent providers.

17.4 Discrimination

Procurement rules must not favour incumbent generators or particular technologies without objective justification.

17.5 Consumer protection

Flexibility costs ultimately affect electricity consumers.

17.6 Data governance

Flexibility requires detailed information concerning:

• consumption;
• generation;
• location;
• availability;
• performance.

17.7 Reliability

A flexibility provider that fails to respond when called may create network-security risks.

17.8 Double procurement

The same flexibility resource should not receive incompatible payments for the same service from multiple markets.

17.9 Network neutrality

DSOs must distinguish their monopoly network function from competitive commercial activities.

18. India: Relevance to Indian Electricity Law

The concept is increasingly relevant to India even though the British/EU flexibility framework is more explicitly developed.

The Electricity Act 2003 provides the foundational framework for:

• transmission and distribution;
• open access;
• electricity markets;
• grid operation;
• regulatory commissions;
• tariff regulation;
• renewable-energy integration.

India's growing deployment of:

• rooftop solar;
• batteries;
• electric vehicles;
• smart meters;
• distributed generation;
• demand response

creates conditions in which local flexibility mechanisms could become increasingly valuable.

Indian electricity regulation could potentially develop a model under which distribution licensees or system operators procure flexibility to address:

• transformer congestion;
• feeder overload;
• solar intermittency;
• EV charging peaks;
• voltage problems.

Such a framework would need to be aligned with the Electricity Act, CERC/SERC regulations, grid-code requirements and consumer-protection principles.

19. Local Flexibility and Energy Justice

Local flexibility also has an important energy-justice dimension.

If flexibility markets are designed only for large commercial batteries and industrial consumers, smaller consumers may be excluded.

A more inclusive framework can enable participation through:

• aggregators;
• community energy schemes;
• residential batteries;
• EV aggregators;
• smart appliances.

The legal framework should therefore consider not only economic efficiency but also accessibility, transparency and fair participation.

20. Advantages

Local flexibility procurement can provide:

1. Deferred network investment
2. Reduced congestion
3. Improved renewable integration
4. Better utilisation of existing networks
5. Consumer participation
6. New revenue opportunities for DER owners
7. Improved network efficiency
8. Support for EV and heat-pump electrification
9. Greater competition in electricity services
10. More adaptive distribution-system governance

21. Challenges

However, flexibility is not a complete substitute for infrastructure investment.

Major challenges include:

• uncertain availability;
• forecasting errors;
• insufficient local liquidity;
• provider concentration;
• measurement problems;
• baseline disputes;
• cybersecurity risks;
• conflicting TSO/DSO requirements;
• regulatory uncertainty;
• contract enforcement;
• difficulty comparing flexibility with long-lived network assets.

Therefore, the appropriate legal model is generally flexibility plus strategic network reinforcement, rather than flexibility instead of reinforcement altogether.

22. Regulatory Model

A mature local-flexibility regime can be represented as:

Network planning

↓

Identification of local constraint

↓

Assessment of conventional reinforcement

↓

Assessment of flexibility alternatives

↓

Publication of flexibility requirement

↓

Open and transparent procurement

↓

Competitive bids

↓

Technical + economic evaluation

↓

Contract award

↓

Dispatch

↓

Measurement and verification

↓

Payment

↓

Regulatory reporting

↓

Evaluation against reinforcement counterfactual

This creates a continuous feedback loop between network planning and competitive flexibility markets.

23. Conclusion

Local flexibility procurement represents a major transformation in electricity-distribution law. The traditional regulatory model treated the distribution network largely as a passive infrastructure monopoly whose principal response to rising demand was physical reinforcement. The flexibility model transforms the DSO into an active system coordinator and market facilitator.

The legal principles emerging from the EU and GB frameworks are particularly significant:

• flexibility should generally be procured through transparent and market-based mechanisms;
• providers should be treated without unjustified discrimination;
• demand response, storage and distributed generation should be capable of participating;
• DSOs and TSOs must coordinate;
• flexibility may be used as an alternative to or to defer conventional reinforcement;
• procurement decisions must remain subject to regulatory oversight and reporting.

Ofgem's SLC 31E provides a concrete regulatory model, while Article 32 of Directive 2019/944 supplies an important European legal foundation. Legislation.gov.uk

The central legal shift can therefore be stated as follows:

The distribution network is moving from a purely infrastructure-centred regulatory model toward a market-enabled, flexibility-based model in which distributed resources can become legally recognised providers of network services.

This development has major implications for DSO governance, competition law, procurement law, tariff regulation, consumer protection, energy justice, DER integration and the future architecture of electricity markets.