Credit Assessment Price increase to £305/MWh

Who will this impact?

The Credit Assessment Price (CAP) is used in the Energy Indebtedness calculations to convert Credit Cover into an energy value. A change to CAP can impact the amount of Credit Cover required by a BSC Party.

When the CAP rises it may affect the amount of credit cover that suppliers and generators are required to lodge with us. For some Parties this may mean additional collateral needs to be lodged. We recommend monitoring your Indebtedness and Credit Cover Percentage calculations on the Elexon Portal to understand how this change may affect your Party.

If all respondents and Credit Committee members are in agreement, the proposed value will be implemented on Friday 17 December 2021. Please note the last notified CAP value of £230/MWh will still be implemented on Friday 3 December 2021.

Alternative CAP Review Process

Credit Committee members have decided to continue using the alternative Credit Assessment Price (CAP) Review process due to fast market conditions. This alternative process allows the Credit Committee to set a new CAP faster, review the CAP every two weeks and base their assessment on a wider range of data sources. Please note this alternative process is outlined in the CAP Review Process Guidance.

Consultation questions

The questions in the consultation are:

• Do you agree with the proposal to increase the Credit Assessment Price (CAP) to £305/MWh?
• If your answer to Question 1 is ‘No’, please give the value of CAP that you consider to be more appropriate and your rationale for that value.
• Do you have any further comments relating to the appropriate value of CAP or the other points made in the consultation document?

How to respond

You can respond to this consultation online. All responses must be submitted by 17:00 on Thursday 2 December 2021.

• Submit a response online

If you wish to save and return to your response, or share your response with a colleague before submitting then use the save and return button at the bottom of the form. You will then be given a link with your draft response that you can return to or share before submission.

For any enquiries about responding to this consultation, please contact [email protected]

Background to the CAP

The Credit Assessment Price (CAP) is a parameter defined in Section M1.4 of the BSC as ‘the price it would be appropriate to use to determine the equivalent financial amount of BSC Parties’ Energy Indebtedness.’

Since 1 November 2021 the Credit Committee have been following the alternative CAP review process due to fast market conditions.  While the alternative Credit Assessment Price (CAP) Review process is being operated, the Credit Committee will review the Credit Assessment Price every two weeks.

The consultation period is reduced to two working days and the notification period is reduced to 10 working days. This enables the CAP to change faster so that it remains representative of market conditions.

Rationale behind proposed CAP value

The Credit Committee met on 30 November 2021 to consider an appropriate CAP corresponding to the period when the proposed CAP would be active. As the CAP is reviewed every two weeks, the proposed CAP will be live between 17 December 2021 and 30 December 2021 at a minimum.

The Credit Committee gave greater weighting in their consideration to the latest forecast for what prices will be in December 2021. On the date of the meeting, average forecast market prices were at £305/MWh for December with latest peak Prices at £350/MWh and latest base prices at £260/MWh. The Credit Committee also noted that average forecast market prices were increasing to £375/MWh in January.

The most recent System Prices were considered and it was noted that there had recently been high priced accepted Offer Prices in the Balancing Mechanism. Given the chance of a colder weather and high prices in the Balancing Mechanism, the Credit Committee noted that there was likely to be System Price spikes during period when the proposed CAP would be live.

The Credit Committee decided to propose a CAP of £305/MWh, as the forward market prices for December supported increasing the CAP from the last notified value. However, they also noted that prices going into January are currently forecast to be higher, so are prepared to increase the CAP in two weeks’ time at their next meeting, depending on what the price data shows in two weeks.
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The graphs below contains the data that was presented to the Credit Committee to help inform their proposal. There are four graphs, you can move between the graphs by using the arrows at the bottom. There are also options to filter the data by using the buttons on the right hand side of the graphs.

Decision to retain the alternative CAP Review Process

The Credit Committee also considered whether it was appropriate to retain the alternative CAP review process. It was noted that the latest Reference Price, based on forward market prices for December and January is £312.60/MWh. Under the normal CAP review process this would breach the upper trigger level (+/- £23/MWh) of the last notified CAP value £230/MWh.

The Credit Committee considered that the absolute price changes in the market, as well as the changes on percentage basis were considerable. Hence, they agreed that it was still appropriate to retain the alternative CAP review process.

Next Steps

Following the end of the consultation period, if required, the Credit Committee will consider any consultation responses without holding a meeting, and decide whether to change the current CAP value. Consultation responses will be considered in more detail at the next Credit Committee meeting, which currently occur every two weeks.

Any change will be notified to all BSC Parties, and the new value will come into effect at least 10 Working Days later.

The next review of the CAP under the alternative CAP review process will be in the week commencing 13 December 2021.

Further guidance

If any Parties have questions or concerns about the CAP, please reach out to our team at [email protected].

If you have questions or concerns about how the change to CAP may impact your Credit Cover please get in contact with [email protected].