CAP decreases to £68/MWh from 4th December 2018

On 4 December 2018, the CAP value will decrease from £75/MWh to £68/MWh. Parties may notice a change in their Credit Cover Percentage, and should review the amount of Credit Cover lodged.

Why has this happened?

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 Trading Parties’ Energy Indebtedness.’

On 5 November, a trigger event occurred, meaning that the absolute difference between the CAP and the reference price is greater than the trigger level of £6/MWh.

As a result, we issued a consultation paper on the value of Credit Assessment Price (CAP) on 5 November 2018. The consultation asked Trading Parties to indicate whether they agreed with the proposal to decrease the value of CAP to £68/MWh from its current approved level of £75/MWh.

There were no objections by industry or the Credit Committee to the proposed reduction to the CAP.

Recent Pricing Data

The Reference Price has averaged £72.23/MWh in October 2018. From 1 November 2018, the Reference Price calculation has changed to use December 2018 and January 2019 forward prices.

Following the 5 November 2015 change to a single System Price and smaller Price Average Reference (PAR) volume, we have seen more volatile prices. This is an issue for a single CAP at a Settlement Period level.

Looking at the 30 day moving average, the absolute error was ~£11/MWh in October 2018.

The CAP Review Process

On the first working day of each week, we compare the value of CAP to the Reference Price, which is derived from average monthly forward market prices currently provided by ICIS Heren. Where the absolute difference between the two values exceeds the trigger level, it is termed a ‘trigger event’.

Once a new CAP value is notified to BSC Parties, the weekly trigger process is resumed on the first working day of the following week. The trigger process uses the newly notified CAP value for the comparison with the Reference Price.

Following a trigger event, we issue a consultation proposing that the CAP is changed to the current Reference Price.

Following the consultation, if at least one respondent or Credit Committee member requests it, ELEXON will arrange a Credit Committee meeting to determine the new CAP value. If all respondents and Credit Committee members agree with the proposed value no meeting will be held.

If a Credit Committee meeting is held, the Credit Committee will confirm the date from which change will take effect. This date will not be less than 15 Working Days after BSC Parties receive notification of the change.

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