Elexon: Wholesale price rises mean greater responsibility to self-balance

Continuing increases to wholesale costs mean suppliers have a greater responsibility to self-balance in the energy market, Elexon’s director of digital operations has said.

Peter Stanley was speaking to Utility Week following an announcement by the Balancing and Settlement Code (BSC) administrator that the credit assessment price (CAP) is to rise to a new record of £259/MWh.

If approved, this increase will be in addition to the 5 October rise to £137/MWh and the incoming 21 October 2021 increase to £184/MWh. Additionally it will be the fourth since August, ultimately meaning it has risen by £163/MWh since then.

Concerns have been raised previously that such increases could lead to further supplier failure.

Stanley, however, said he believed well-hedged retailers will likely not find themselves to be heavily imbalanced and therefore not at as much risk as those who have failed to hedge properly.

He explained: “In a market where prices are continuing to rise then it places a greater responsibility to self-balance and that’s what the imbalance incentives are there to do.

“Therefore suppliers that have actually balanced, bought enough energy to supply their customers, their imbalance is likely to be very small, therefore both the credit cover requirements and cash flow implications of covering their trading charges are lower.

“The key is in the trading strategy and your ability to predict demand and then be able to match that by buying energy, if you are exposed by virtue of an inability to be able to close that gap then that’s where the challenge comes up, particularly with rising wholesale prices.”

When asked if further increases to the CAP are likely, Stanley said it was difficult to say, but that the CAP to date has been a “pretty good proxy” for where wholesale prices have been.

He added the code administrator was very conscious of the CAP not becoming an “unnecessary burden”.

“We are very conscious that we don’t want to be raising the cap to a point which places an unnecessary burden on suppliers already in a difficult position.

“It is important that the suppliers’ credit cover is sufficient to protect market participants if the supplier is unable to pay their trading charges, as any charges that are not accounted for with credit cover when a BSC party fails are mutualised across the industry, impacting on the remaining parties and ultimately customers.”

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