The Credit Committee for the Balancing and Settlement Code has reduced the Credit Assessment Price (CAP) from £36/MWh to £30/MWh, thereby reducing the amount of money that trading parties are required to post to cover their positions.
The change was introduced to reflect the fall in electricity prices resulting from the coronavirus crisis. Code administrator Elexon said the review process has been fast-tracked to minimise the burden on trading parties and prevent them from having to post excess credit cover.
The Balancing and Settlement Code (BSC) requires that parties provide sufficient collateral to cover all of their accrued trading charges, which are usually paid around 29 days after the relevant settlement period.
For the first five workings after they occur, net imbalances are valued using the CAP. The purpose of the arrangement is to give them time to adjust the credit cover in response to sudden price spikes.
At the start of each week, Elexon compares the CAP to a forecast for forward electricity prices. If the CAP differs from this reference price by more than 10 per cent, then the review process is triggered.
Elexon market operations manager Roger Harris said the process would normally take at least 20 working days from start to finish.
On this occasion, Harris said it has taken just 12: “The real difference in the response to Covid-19 is that we’ve expedited the progress to get that value in a little bit quicker than normal just so parties can have that more accurate reflection in their credit calculations to avoid any excess credit cover.”
The new CAP will come into effect on 16 April. Harris said there may be a further reduction later in the month or during May given the latest forecasts for electricity prices.
Elexon also told Utility Week it is working with energy suppliers to make bespoke adjustments to demand allocations for non-daily-metered customers after declining to make changes to the generic load profiles last week.
The load profiles are used to estimate their demand until reconciliation can take place using meter readings. However, changing consumer behaviour as a result of the lockdown, in particular the temporary shutdown of many business activities, means they are no longer accurate.
“The nature of these estimates is that they’ll be replaced by actual data once meters are read, but the concern is that could be so far in the future suppliers could have been exposed to impossible cash flow difficulties in the meantime,” said Elexon market design manager John Lucas.
“A supplier whose customers are being overestimated, for example, has an impossible choice at the moment. They can either continue to buy the energy that the profile says that they should do, in which case they’re having to buy more and more energy that they can’t recover from their customers. Eventually they would get that back in a reconciliation process but they may make a loss when they do that.
“Alternatively they can try and reduce the power they’re buying to match what they believe their customers are actually doing and then it will look the settlements systems, if we’ve not adjusted the estimates, that they’re not buying enough power and we will make them put up credit cover and charges.
“Obviously this is a particular issue for specialist business-to-business suppliers whose portfolio has drastically reduced its demand,” he added.
Lucas said the load profiles are “broad instruments” that would be difficult to accurately adjust to fit the new situation: “In some cases, that will be improving the matter. In some cases, it could be making it worse; if it’s a business that’s working harder, for example.”
Elexon instead plans to use information provided by suppliers to make case-by-case adjustments to their allocations: “That will begin to remove the discrepancy between what they’re buying and what the profiles and settlement are allocating to them and address the cash flow issues that otherwise they would be experiencing.”
Lucas said the code administrator is aiming to submit proposals to the Performance Assurance Board “within the next day or two”.