This page gives details of a consultation on decreasing the Credit Assessment Price (CAP) to £215/MWh.
Outcome
The Credit Assessment Price (CAP) will stay at £xxx/MWh
The Credit Committee has decided that the consulted on CAP value of £xxx/MWh would no longer be reflective of market data for implementation in March. Therefore it will not be implemented unless forward market prices revert to their former downward trends very soon which will be observed very closely over the coming days until the next Credit Committee meeting. Circular EL03533
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| Issue date: 30 September 2022 |
Closing date: 31 September 2022 |
Original consultation
Who will it 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.
What is proposed?
The proposal is to decrease the Credit Assessment Price (CAP) to £215/MWh. This CAP will be due to be implemented on 8 April 2022 from the last notified CAP of £250/MWh.
If, after consultation, the Credit Committee members are in agreement to proceed with the proposed CAP, this CAP will be implemented on Friday 8 April 2022.
The current live CAP value of £330/MWh was implemented on Thursday 17 March 2022 and will be replaced by the last notified CAP of £250/MWh from 1 April 2022.
Documents
Consultation Documents
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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.
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 to retaining last notified CAP and new proposed CAP value
The Credit Committee met on 17 February 2022 to decide whether the last notified CAP of £190 was still appropriate to go live on 22 February 2022 and also to consider an appropriate CAP for implementation on 8 March 2022.
As a Credit Committee is arranged to be held on 3 March where a new CAP could be proposed, today’s proposed CAP would be live between 8 March 2022 and 21 March 2022 at a minimum provided that it is not cancelled before implementation driving by possible changes in the market over the next few weeks.
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 March 2022. The latest date with available forward market data was 16 February 2022. For this date average forward market prices were at £172/MWh for March 2022.
The Credit Committee also considered that the seven day rolling averages of System Price and Market Index Price have decreased over the last two weeks and reached £144/MWh and £156/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 £190/MWh should still go live on 22 February 2022.
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 alternative CAP Review Process
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 percentage basis were not as aggressive as they were in December 2021 and early January 2022.
The latest Reference Price, based on forward market prices for February and March is £178/MWh. Under the normal CAP review process this would not breach the lower trigger level (+/- £19/MWh) of the last notified CAP value of £190/MWh.
However, the Credit Committee felt there was a large amount of uncertainty in the market especially over the next couple of weeks where adverse weather condition is still likely which along with uncertainties in gas markets and geopolitical situations could drive upward trends in the electricity prices.
Therefore the Credit Committee members decided to continue using the alternative CAP review process. They also emphasised that they will continue to monitor prices, and if and when necessary intervene to make a decision which is the most reflective of the market conditions.
