Consultation on CAP decrease to £245/MWh from 8 February 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 Tuesday 8 February 2022.

The current live CAP value of £305/MWh was implemented on Friday 17 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 Note.

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 27 January 2021.

Consultation questions

The questions in the consultation are:

• Do you agree with the proposal to decrease the Credit Assessment Price (CAP) to £245/MWh? Please note this CAP will be due to be implemented on 8 February 2022 from the current CAP of £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 Monday 24 January 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 every two weeks. However the Credit Committee might also meet in between if they feel it is necessary.

Since 1 January a Credit Committee meeting has been held every week due to fast changes in the market conditions.

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 cancelling the last notified CAP and the new proposed CAP value

The Credit Committee met on 20 January 2022 to decide whether the last notified CAP of £340 was still appropriate to go live on 25 January 2022 and also to consider an appropriate CAP for implementation on 8 February 2022.

As a Credit Committee is being held on 27 January where a new CAP could be proposed, today’s proposed CAP would be live between 8 January 2022 and 15 February 2022 at a minimum.

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 January, February and March 2022. The latest date with available forward market data was 19 January 2021. For this date average forward market prices were at £233/MWh for February with latest peak Prices at £266/MWh and latest base prices at £200/MWh.

The Credit Committee also considered that the seven day rolling averages of System Price and Market Index Price have increased over the last week and reached £207/MWh and £210/MWh respectively.

The Credit Committee members took into account the forward market prices and recent System Prices and unanimously agreed that the current available data strongly shows that the last notified CAP of £340/MWh for 25 January onwards looks too high.

They accordingly decided to cancel this CAP and retain the current CAP of £305/MWh until the next CAP is implemented.

The Credit Committee felt there was a large amount of uncertainty in the market especially over the end of January and beginning of February where weather is likely to get closer to the season norms driving upward trends in the prices.

As such, they decided to propose a CAP of £245/MWh to go live on 8 February considering a two-day consultation and 10-day implementation period. The Credit Committee members emphasised that they will continue to monitor prices, and if and when necessary, meet to make a decision which is the most reflective of the market conditions.

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 latest Reference Price, based on forward market prices for February and March is £213/MWh. Under the normal CAP review process this would breach the lower trigger level (+/- £31/MWh) of the current CAP value of £305/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 proceed with the proposed CAP.

Consultation responses will be considered in more detail at the next Credit Committee meeting.

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 next week on 27 January 2022.

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].