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Proposals by Elexon to increase the Credit Assessment Price (CAP) could lead to more supplier failures in the coming months, an industry expert has warned.
Earlier this week, the administrator for the Balancing and Settlement Code (BSC) announced it was consulting on raising the CAP from its current value of £96/MWh to its highest ever level at £113/MWh.
The CAP is used to calculate the monetary value of the energy indebtedness of BSC parties and therefore determine the appropriate level of credit cover to protect against their insolvency.
Elexon issued the consultation following a divergence between the CAP and the reference price, which is derived from average monthly forward market prices. An adjustment is triggered if the absolute difference between the CAP and the reference price exceeds 10 per cent of the CAP to the nearest pound. This trigger level is currently set at +/- £10/MWh.
If the new value is confirmed, it would be the highest CAP since the parameter was introduced in March 2001.
Speaking to Utility Week, Tom Steward, formerly a senior regulatory manager at Good Energy, said he believed the impact could be severe for some smaller suppliers.
He said: “The Credit Assessment Price controls how much money suppliers need to put down as credit. This winter was already going to be tough for rookie suppliers and this rise could undoubtedly lead to even more supplier failures.
“It certainly has potential to do so because it’s another call on their cashflow. Like any other business if you are in financial difficulties and are then required to put down more credit, that is less money that is available for you to do other things with.
“I would stress that not all small suppliers are the same. Some manage themselves very carefully and keep a very close eye on this sort of thing. However, there are others pricing below cost, that don’t necessarily have the reserves and follow the same financial rigours as their counterparts.”
If all respondents and Credit Committee members are in agreement, the proposed value will be implemented on 8 September.
However, if at least one respondent or Credit Committee member requests it or disagrees with the proposed value, Elexon will arrange a Credit Committee meeting which will determine if a change needs to be made to the value of the CAP, the trigger level and when any new value should be implemented.
The consultation is open until 17 August.
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