Consultation: Credit Assessment Price decrease to £250/MWh from 1 April 2022

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 changes 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, after consultation, the Credit Committee members are in agreement to proceed with the proposed CAP, this CAP will be implemented on Friday 1 April 2022. The current live CAP value of £190/MWh was implemented on Tuesday 22 February 2022 and will be replaced by a CAP of £330/MWh from 17 March 2022.

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.

To allow the faster implementation of CAP values during the alternative CAP review process, the Credit Committee will initially consider your consultation response ex committee. However, your response will be considered in more depth at the next Credit Committee meeting. The next Credit Committee will be held on 29 March 2022.

Consultation questions

The questions in the consultation are:

• Do you agree with the proposal to decrease the Credit Assessment Price (CAP) to £250/MWh? This CAP will be due to be implemented on 1 April 2022 from the last notified CAP of £330/MWh.
• If your answer  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?

How to respond

You can respond to this consultation online. All responses must be submitted by 10am on Friday 18 March 2022.

• 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.

If you would like a follow up from Elexon about your consultation response, please provide your contact details in the form. 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 at least once every two weeks. However the Credit Committee might also meet in between if they feel it is necessary.

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 retaining the last notified CAP and the new proposed CAP value

The Credit Committee met on 15 March 2022 to decide whether the last notified CAP of £330 was still appropriate to go live on 17 March 2022 and also to consider an appropriate CAP for implementation on 1 April 2022.

As a Credit Committee is arranged to be held on 29 March where a new CAP could be proposed, today’s proposed CAP would be live between 1 April 2022 and 14 April 2022 at a minimum provided that it (the proposed CAP of £250/MWh) is not cancelled before implementation as a result of changes in the market over the next few weeks.

The Credit Committee have been using ICIS Heren peak and base, power price assessments as the primary information to inform their decisions. The data that the committee were provided with is shown in the graphs below.

The Credit Committee considered the latest forward market prices for April 2022. The latest date with available forward market data was 14 March 2022. For this date average forward market prices were at £248/MWh for April 2022. The prices for w/c 21 March 2022 averaged at £252/MWh and for w/c 28 March 2022 averaged at £248/MWh.

The Credit Committee also considered the System Prices and Market Index Prices. The seven day rolling average of System Prices £236/MWh and the seven day rolling average of Market Index Prices is £249/MWh.

The Credit Committee members took into account the forward market prices and recent System Prices. They emphasised that they appreciate the recent market data is not as high as the last notified CAP value of £330/MWh. There is still a high level of uncertainty in the market particularly under the current geopolitical circumstances. The data available strongly points out that retaining the current live CAP of £190/MWh could impose further risks to BSC Parties should a Party fails to lodge enough credit to hedge their debts. Therefore the Credit Committee members agreed that the last notified CAP of £330/MWh should still go live on 17 March 2022.

The graphs below contain the data that was presented to the Credit Committee to help inform their decision. There are six 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.

The Credit Committee are also investigating how an issue group could be raised to provide a more fundamental review of the Credit Cover arrangements.

Decision to retain the alternative CAP Review Process

The Credit Committee discussed whether it was appropriate to retain the alternative CAP review process.

The Credit Committee considered that the absolute price changes in the market, as well as the changes on percentage basis were significant. The latest Reference Price, based on forward market prices for April and May is £296/MWh. Under the normal CAP review process this would have breached the lower trigger level (+/- £33/MWh) of the last notified CAP value of £330/MWh.

The Credit Committee felt there was a large amount of uncertainty in the market impacted mainly by geopolitical drivers.

Therefore the Credit Committee members decided to continue using the alternative CAP review process. They also emphasised that they will continue to monitor the market, and if and when necessary intervene to make a decision which is the most reflective of the market conditions.

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 proceed with the proposed CAP. Consultation responses will be considered in more detail at the next Credit Committee meeting on 29 March 2022.

Any changes 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 on 29 March 2022 until which the Credit Committee will continuously monitor the market conditions. If the Credit Committee feels it is needed it will meet before the scheduled meeting to make the best decision that is the most reflective of market data.

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].