In July 2020 the EU Commission stated that, as of 1 January 2021, electricity trading arrangements for Great Britain would be different than when it was integrated with the Single Market and that, irrespective of a trade deal being agreed, the UK will leave the Internal Energy Market (IEM) from 1 January 2021. This means that the GB day-ahead market will no longer be coupled with the rest of Europe from that date.
This update is to inform our stakeholders about how the Intermittent Price Sources are used to calculate Difference Payments under the Contract for Difference (CfD) for Intermittent Generators. This is intended as a reminder of how this process works and will remain working once the transition period ends.
Intermittent Market Reference Price (GB Day Ahead Hourly Price)
Under the CfD, when the Reference Price for the electricity generated by a CfD Generator is below the Strike Price set out in their contract, payments are made by Low Carbon Contracts Company (LCCC) to the CfD Generator to make up the difference between the Reference Price and the Strike Price.
However, when the Reference Price is above the Strike Price, the CfD Generator pays LCCC the difference. LCCC calculates both an Intermittent Market Reference Price (IMRP) and a Baseload Market Reference Price (BMRP) through EMRS, in their capacity as our Settlement Agent.
The IMRP is available on the Settlement Data webpage of the EMRS website. It is updated weekly every Friday and includes data from the previous Friday to Thursday.
How is the Intermittent Market Reference Price (IMRP) calculated?
The IMRP is calculated using day-ahead data received from EPEX and N2EX. An IMRP is calculated for every hour of the day pursuant to Condition 21 of the CfD (see pages 101-102).
We calculate the IMRP in line with Condition 21.2(A) but may need to switch to 21.2(B)(ii) if the Price Sources decouple.
If no IMRP is capable of being calculated pursuant to Conditions 22.1(A) and 22.1(B) then fallback provisions are applied under Conditions 21.2(C) to maintain continuity of Reference Price creation for the CfD.
IMRP Principles Review
If LCCC determines that the IMRP does not reflect the market price for the sale of electricity delivered within Great Britain, it can undertake an IMRP Principles Review. (pages 317-320 of the CfD).
How will the IMRP be calculated from 1 January 2021?
From 1 January 2021, in a decoupled electricity trading markets scenario, the IMRP will be calculated on a volume-weighted average basis. There will be no change in process from EMRS or CfD contract holders.
Further considerations
The integrated calculation engine run by EMRS already has the capability to perform the volume-weighted average.
We are fully aware of market liquidity concerns and would encourage stakeholders to contact Ofgem with market liquidity related queries here: EUExit@ofgem.gov.uk.
LCCC currently has no plans to alter its forecasting approach as a result of market decoupling. In relation to other Brexit matters, LCCC will be reviewing its use of EU Emissions Trading System (ETS) prices once UK ETS prices become available and we can perform the necessary data quality assurance.