ELEXON insights: Defaults and SoLRs increased in 2018
In this ELEXON Insight, Emma Tribe, Business Intelligence Analyst, looks at the data behind these defaults and the 1.85% of electricity meters that have been transferred to a Supplier of Last Resort in 2018.
Parties in Default of the BSC
There have been 21 incidences of BSC Parties being in default of the BSC (Section H default) from September 2017 to December 2018. This has led to a Supplier of Last Resort (SoLR) being appointed for seven defaulting suppliers.
Graph 1: defaults that did and did not result in a SoLR being appointed
The majority of Section H defaults have been from small and medium suppliers:
- Two medium sized suppliers were in Section H default and had a SoLR appointed in November 2018
- Ten small Suppliers were in Section H default between September 2017 and November 2018, of these five had a SoLR appointed
There were also nine Section H defaults from BSC Parties with no customers.
Definition of small and medium suppliers within this data
For this analysis we have considered a small supplier as having between 1 and 99,999 Supplier Volume Allocation (SVA) MSIDs, a medium supplier as having between 100,000 and 999,999 SVA MSIDs and a large supplier as having over 1,000,000 SVA MSIDs.
Where the company has no SVA MSIDs we have considered them as having no customers, this includes non-physical traders, suppliers with no SVA registered MSIDs or a company with only Central Volume Allocation (CVA) MSIDs.
Meters impacted by SoLR
The data shows that 557,911 MSID’s have been transferred to a SoLR as a result of Section H defaults between September 2018 and December 2019.
This is more than the number of domestic electric switches in November 2018, which was 497,050 from Energy UK’s switching reports.
Graph 2: number of MSIDs transferred to a SoLR
When a SoLR is appointed, the electricity Metering Systems (MSIDs) registered to the defaulting Party are transferred by ELEXON to the SoLR.
557,911 MSID’s have been transferred to a SoLR as a result of Section H defaults between September 2017 and December 2018. This is more the number of domestic electric switches in November 2018, which was 497,050 from Energy UK’s switching reports.
The number of MSIDs transferred as a result of a SoLR in 2018 represents approximately 1.85% of Suppliers MSID’s.
The majority (74%) of MSID’s transferred to a SoLR were due to two Section H Defaults in November 2018. In this month two medium sized suppliers entered Section H default and had a SoLR appointed by Ofgem.
Energy Imbalance Percentage by Party Size
BSC Parties accrue Energy Imbalance Trading Charges when there is a difference between their Credited Energy Volume and the volume they have bought or sold via bilateral contracts.
The following graphs show that small Parties have, on average, a higher Energy Imbalance Volume as a percentage of their Credited Energy Volume.
Eight small Parties did not buy energy to cover their position and instead have 100% imbalance.
Graph 3: Energy Imbalance Percentage by MSIDs
What does this tell us?
Choosing to ‘spill’ by not trading on your position and having a higher Energy Imbalance Volume is a valid trading decision for BSC Parties.
However, increased Imbalance Volumes can leave a BSC Party vulnerable to spikes in Energy Imbalance Prices and increases the amount of Credit Cover the Party is required to lodge.
Graph 4: Energy Imbalance Percentage by size of BSC Party
Between August 2018 and November 2018 the percentage of Imbalance Energy for Medium and Large Parties was 5%. Parties classified as medium and small each have more than 100,000 MSIDs.
For the same period the percentage Imbalance for all small parties was 15%.
For small Parties the day with the greatest Imbalance percentage was 3 March 2018. On this day there were colder than average temperatures in the UK and higher than average Energy Imbalance Prices as a result of the ‘Beast from the East’.
Quantity of defaulted payments for Parties
Trading Charges invoices above the £500 minimum invoicing amount are due daily for BSC Parties. When a payment deadline is missed the BSC Party enters Payment Default.
Graph 5: value and number of defaulted payments
This graph shows the number and total value of defaulted payments from Parties in and out of Section H Default between August 2017 and December 2018.
During this period £8m of Trading Charges from 1,154 invoices were not paid on the due date. The majority (66%) of Payment Defaults were due to Parties in Section H default.
£2.8m of Trading Charges were not paid on the date due in December 2018. 76% of the missed invoices in this month were due by BSC Parties in Section H default.
Recovering defaulted payments
When a BSC Party is in Payment Default they are given two days to pay the outstanding amount. If payment is not made, the owed amount is taken from the BSC Parties Credit Cover.
If there is not enough Credit Cover to clear the charges they are mutualised across all other parties (Default Funding Share).
Graph 6: value of payment default by recovery method
This graph shows the different quantities of money taken from Credit Cover compared to the Default Funding Share and Direct Payments.
For Parties not in Section H default, 92% of the value of missed payments were paid late, but before the amount was taken from Credit Cover.
In comparison, Parties in Section H default generally do not pay the missed payment amount. 55% of the owed Trading Charges were recovered from the Parties’ Credit Cover. The remaining owed amount of £1.9m are mutualised via the Default Funding Share.