The Capacity Market Regulations and Rules provide for two methods for Capacity Providers to mitigate the risk of penalties if they are unable to meet their Obligation.
- Obligation Trading
- Volume Reallocation
Also commonly referred to as “Secondary Trading”, this allows Capacity Providers to trade all or part of their Capacity Market (CM) Capacity Obligation for a Delivery Year with other eligible CM participants who meet the ‘acceptable transferee’ requirements.
It enables Capacity Providers to cover periods of unavailability of capacity due to planned and unplanned outages of generators and demand side participants, enabling the transfer of the risk of under-delivery, which would ordinarily attract penalty payments.
Following the trading of an Obligation, the original owner no longer receives Capacity Payments and has no exposure to penalties. The new owner will start to receive Capacity Payments along with holding the onward accountability and delivery risk.
The requirements placed both on the transferor and transferee in order to trade their Capacity Obligation can be found within the Capacity Market Rules.
Obligations acquired through Capacity Market auction processes, are traded by volume, per settlement period but limited by the overall de-rated capacity of the recipient to ensure any new owner can fulfil the onward delivery commitment, should a period of system stress occur.
Obligation Trading is managed by National Grid in its role as EMR Delivery Body. Capacity Payments are settled by EMRS on behalf of ESC, the CM Settlement Body.
For more information, please refer to the Capacity Market Rules or contact National Grid.