Consultation on CAP increase to £340/MWh from 25 January 2022
This page gives details of a consultation on increasing the Credit Assessment Price (CAP) to £340/MWh. This two-day consultation will close at 17.00 on 7 January 2022. Please note the last notified CAP value of £380/MWh will not go live on 7 January following a Credit Committee decision on 5 January 2022 to retain the current CAP of £305/MWh.
Update (20 Jan 2022)
The Credit Committee has been monitoring market data and held a meeting on 20 January 2022 to decide if the last notified CAP value of £340/MWh was still reflective of the recent market data and/or to propose a new CAP value for consultation.
The Credit Committee decided to cancel the last notified CAP value of £340/MWh, which was due to go live on 25 January 2022.
They also proposed a new CAP value of £245/MWh, which will go live on 8 February 2022. The next scheduled Credit Committee meeting is on 27 January where a new CAP could potentially be proposed. Therefore, the minimum duration of the new proposed CAP (£245/MWh) will be between 8 February 2022 and 15 February 2022.
We have provided more information on the rationale for this proposed CAP on the consultation webpage. Parties are invited to respond by 17:00 on Monday 24 January 2022.
Outcome (10 Jan 2022)
On Tuesday 25 January 2022, the CAP value will increase to £340/MWh from current value of £305/MWh. As a result, Parties may notice a change in their Credit Cover Percentage and should review the amount of Credit Cover lodged.
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.
- Elexon Portal > Financial and Credit > Credit / Credit Alerting > Party Energy Indebtedness
If all respondents and Credit Committee members are in agreement, the proposed value will be implemented on Tuesday 25 January 2022. Please note the last notified 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.
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 on 11 January 2021.
The questions in the consultation are:
- Do you agree with the proposal to increase the Credit Assessment Price (CAP) to £340/MWh? Please note this CAP will be due to be implemented on 25 January 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 Friday 7 January 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 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 this consultation
The Credit Committee met on 5 January 2022 to decide whether the last notified CAP of £380 was still appropriate to go live on 7 January 2022 and also to consider an appropriate CAP for implementation on 25 January 2022. As a Credit Committee is being held on 11 January, today’s proposed CAP would be live between 25 January 2022 and 27 January 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 and February 2022. The latest date with available forward market data for the month of January was 31 December 2021. For this date average forward market prices were at £278/MWh for January with the latest peak Prices at £340/MWh and the latest base prices at £215/MWh.
The latest date with available forward market data for February was 4 January 2022. For this date average forward market prices were at £359/MWh for February with the latest peak Prices at £444/MWh and the latest base prices at £275/MWh.
The Credit Committee also considered the latest Weekly prices for week+1, the week beginning on 10 January 2022, and week+2, the week beginning on 17 January 2022.
The latest date with available forward market data for these two weeks was 4 January 2022. For this date average forward market prices were at £286/MWh for week+1 with latest peak Prices at £353/MWh and latest base prices at £220/MWh.
While the weekly forward market prices for January had fallen over the last few days in December 2021, they have risen after 31 December. This was, for example, the case for the week beginning 10 January where the average price fell from £329/MWh on 29 December to £240/MWh on 31 December and increased to £286/MWh on 4 January 2022.
For week+2, forward market prices averaged at £323/MWh with the latest peak Prices at £399/MWh and the latest base prices at £247/MWh.
The Credit Committee members unanimously agreed that the current data available for January shows that the last notified CAP of £380/MWh for 7 January onwards looks too high. They accordingly decided to cancel this CAP and retain the current CAP of £305/MWh.
The Credit Committee felt there was a large amount of uncertainty in the market especially over the second half of January where an insufficient amount of data is available and the weather is more likely to get closer to the season norms driving upward trends in the prices.
Considering the rise seen in the forward market prices for January, and comparing those to February prices, the Credit Committee members discussed that an increase in January prices is likely.
They discussed that from the price average for the week beginning 17 January (£323/MWh) and the price average for February (£359/MWh) it is likely to have an average of those prices for the week beginning 24 January 2022. As such, they decided to propose a CAP of £340/MWh to go live on 25 January 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 that 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 latest Reference Price, based on forward market prices for February and March is £332/MWh. Under the normal CAP review process this would not breach the upper trigger level (+/- £30/MWh) of the current CAP value of £305/MWh.
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 a percentage basis, were considerable. Hence, they agreed that it was still appropriate to retain the alternative CAP review process.
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 is on 11 January 2022.
The Credit Committee meetings 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 10 January 2022.
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].