Glossary

Consultation on CAP increase to £395/MWh from 31 August 2022

This page gives details of a consultation on revising the Credit Assessment Price (CAP) to £395/MWh from 31 August 2022. This two-day consultation will close at 10:00 on 16 August 2022.


Outcome

On Wednesday 31 August, the CAP value will increase to £415/MWh. As a result, Parties may notice a change in their Credit Cover Percentage and should review the amount of Credit Cover lodged.


Status

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, today’s proposed CAP of £395/MWh will be implemented on Wednesday 31 August 2022.

The Credit Committee is aware of the concerning numbers seen for the next weeks and months. Considering the latest market data and the direction of market data towards increasing forward market prices, the Credit Committee is leaning towards an increased CAP value of £395/MWh.

This particularly gives the Credit Committee an option to consider withdrawing the last notified CAP of £390/MWh and retain the £330/MWh CAP (which is due to be effective from 17 August) in August should the prices for August remain at the same levels as they are now.

The current live CAP value of £300/MWh was implemented on 9 August 2022 and will be replaced by the previously notified CAP of £330/MWh from 17 July 2022. There is also a CAP of £390/MWh in the pipeline to be implemented from 24 August.

The Credit Committee might withdraw the last notified CAP of £390/MWh before 24 August and/or today’s proposed CAP of £395/MWh before 31 August, if market developments over the coming weeks support such decisions.

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 18 August 2022.

Consultation questions

The questions in the consultation are:

  • Do you agree with the proposal to increase the Credit Assessment Price (CAP) to £395/MWh? This CAP will be due to be implemented on 31 August 2022. Note the last notified CAP of £390 will be effective from 24 August 2022, however the Credit Committee might consider withdrawing it before 24 August, if the August data remains at the current levels over the next two weeks.
  • 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 10:00 on Tuesday 16 August 2022.

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 the new proposed CAP value

The Credit Committee met on 11 August 2022 and proposed a new CAP of £395/MWh for implementation on 31 August 2022.

This gives an additional option to delay the higher CAP value dependent on how late August numbers look.
The Credit Committee might have to withdraw the proposed CAP before 31 August if market data available closer to the implementation date supports such a decision.

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 September 2022 but acknowledged that the prices for October and beyond are significantly higher. The latest date with available forward market data was 10 August 2022. For this date, average forward market prices were at £381/MWh for September 2022 with a peak price of £404/MWh and a baseload price of £358/MWh.

The Credit Committee also considered the System Prices and Market Index Prices. The seven day rolling average of System Prices is £227/MWh and the seven day rolling average of Market Index Prices is £245/MWh.

The Credit Committee emphasised it appreciates the level of uncertainty in the market is high but it believes in order to support BSC Parties it should react to the market developments as fast and as dynamically as practicably possible.

This means the Credit Committee might sometimes have to cancel a notified CAP to revert back to the live CAP if that is the closest to optimal option based on the available data.

Based on the most recent updates in the market data, the Credit Committee members unanimously agreed to propose a new CAP value of £395/MWh, to be implemented from 31 August 2022.

The Credit Committee is aware of the concerning numbers seen for the next weeks and months. Considering the latest market data and the direction of market data towards increasing forward market prices, the Credit Committee is leaning towards an increased CAP value of £395/MWh to bridge the gap from August numbers.

This particularly enables the Credit Committee to react to the market circumstances in a better and quicker way, as the forward market prices seem to be leading to the confirmation that August and September prices are converging.

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

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 18 August 2022.

Any changes will be notified to all BSC Parties, and the new CAP 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 18 August 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].

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