Consultation: revising CAP to £400 from 5 January 2023
This page gives details of a consultation on revising the Credit Assessment Price (CAP) to £400/MWh from 5 January 2023. This two-day consultation will close at 17:00 on 16 December 2022.
Earlier this month, the Credit Committee confirmed a Credit Assessment Price (CAP) increase to £450/MWh from 21 December 2022. However, a decrease in forward prices since this was notified has resulted in an additional CAP value of £400/MWh effective from 5 January 2023 to be proposed by the Credit Committee for consultation. This gives the Credit Committee the optionality to change the CAP, or the option to withdraw any notified CAP(s) when further data is available closer to the implementation date.
Status
Outcome
The consultation closed at 17:00 on 16 December with a single response. As a result, on 5 January 2023 the CAP value will increase to £400/MWh.
Following decreases in forward market prices, the Credit Committee has decided to withdraw the notified CAP value of £400/MWh originally effective from Thursday 5 January 2023. As a result, the existing CAP of £350/MWh shall remain in effect until further notice.
Original consultation
On this page
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.
What is proposed?
This consultation seeks your views on revising the CAP to £400/MWh from 5 January 2023.
The current live CAP value of £350/MWh was implemented on 14 December 2022, with the notified CAP of £450/MWh scheduled from 21 December.
The following timeline outlines the current and the upcoming CAPs and the important dates:
|
CAP |
CAP value (£/MWh) |
Notification Date |
Effective From Date |
Effective To Date* |
|
Live CAP |
350 |
30 November |
14 December |
20 December |
|
Notified CAP |
450 |
7 December |
21 December |
4 January |
|
Today’s consultation |
400 |
19 December |
5 January |
– |
*Note: The Notification Date of a CAP is 10 working days before the Effective From Date and indicates the date on which the Credit Committee notifies whether or not it will proceed with the consulted on CAP, or notify at a different CAP value. The Credit Committee might also withdraw a notified CAP if market developments closer to the Effective From Date support such a decision.
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.
Consultation questions
The questions in the consultation are:
- Do you agree with the proposal to revise the Credit Assessment Price (CAP) to £400/MWh from 5 January 2023?
- If your answer to the above Question 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?
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 the proposed CAP option
The Credit Committee is proposing a CAP of £400/MWh for implementation on 5 January 2023.
The Credit Committee have been using ICIS Heren peak and baseload, 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 January, and acknowledged prices although lower than previous estimates were still above the live CAP value. The latest date with available forward market data is 13 December 2022. For this date, the average forward market price for January were at £427/MWh with the peak price of £495MWh and baseload price of £360/MWh.
Q1 2023 wholesale prices are still showing a premium, which flags a persistent risk that System Prices might start to track forward market prices in the New Year. Therefore the Credit Committee has decided to introduce a CAP of £400/MWh from 5 January 2023 if market developments persist.
Based on the most recent updates in the market data, the Credit Committee members unanimously agreed to propose a new CAP value of £400MWh to be implemented from 5 January 2023.
It is important to highlight that the Credit Committee has been monitoring the market closely and will continue to do so. As always, the Credit Committee will take necessary actions to protect BSC Parties against potential risks as soon as practicably possible.
The graphs below contain the data that was presented to the Credit Committee to help inform their decision. There are a suite of graphs you can move between 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.
Next Steps
Following the end of the consultation period, the Credit Committee will consider any consultation responses, and decide whether to proceed with the proposed CAP. Consultation responses will also be considered at the next Credit Committee meeting.
Note, the decision as to whether the Credit Committee will proceed with the consulted on CAP of £400/MWh or an alternative CAP value for implementation from 5 January 2023 will be communicated on 19 December 2022.
Any changes will be notified to all BSC Parties, and the new CAP will come into effect at least 10 Working Days later.
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].