European Clean Energy Markets (ECEM) Methodology

Renewables

GENERAL METHODOLOGY

ICIS publishes market prices based on information continuously gathered from market participants on spot transactions, spot bid and offer levels, contract price negotiations, prices of related commodities and relevant freight costs.

ICIS includes in its price generation process only information gathered up to the published market closing time for each commodity and assessed period. ICIS does not make retrospective adjustments or changes to price quotations based on information subsequently received.

ICIS regards all arm’s length transactions that meet its specification criteria as carrying equal weight.

ICIS uses proprietary models where necessary to normalise data to the typical specifications for cargo size and date ranges given for each commodity.

ICIS endeavours to crosscheck all the transaction information it gathers. We will not use information for assessment purposes where such checks call into doubt the accuracy of the original information, or where a transaction appears to have occurred under circumstances that render it non-repeatable or otherwise markedly unusual.

ICIS assesses renewable power prices and certificates in Europe thus:

Region	Assessment name	Frequency	Units
UK	0.25 ROC	Monthly	£/MWh
UK	0.5 ROC	Monthly	£/MWh
UK	1.0 ROC	Monthly	£/MWh
UK	1.5 ROC	Monthly	£/MWh
UK	2.0 ROC	Monthly	£/MWh
UK	3.0 ROC	Monthly	£/MWh
UK	5.0 ROC	Monthly	£/MWh
UK	ROC	Monthly	£
UK	RBF	Monthly	£
UK	LEC	Monthly	£
Sweden	Nordic Renewable Energy Certificates	Monthly	SKr

Recent changes to this methodology

Date	Assessment	Change
22 November 2011	All	Document created
4 September 2012	All	Minor changes throughout

ICIS UK RENEWABLE POWER PRICE ASSESSMENTS

ICIS assesses the forward wholesale price of electricity generated from renewable sources to be delivered over monthly, quarterly and annual periods in line with the UK Electricity Forwards Agreement (EFA) calendar (the calendar can be viewed at https://www.theice.com/publicdocs/EFA_Calendar.pdf).

The April annual assessment period begins in line with the start of the second quarter; the October annual assessment period begins in line with the start of the fourth quarter.

Each assessment represents the price of power to be delivered on each day of the relevant period.

ROCs are banded by renewable technology, so that a different amount is awarded per MWh generated, dependant on the technology type.

Compliance periods (CPs) run for 12 months beginning on 1 April. The first – CP1 – began on 1 April 2002.

The future market price for power generated from renewable sources in the UK is made up of three primary factors:

1. The Levy Exemption Certificate (LEC) value, which is index-linked to inflation.

2. The wholesale power price, as assessed by ICIS in European Daily Electricity Markets (EDEM).

3. The ROC value, which itself is made up of two elements:

a. The buy-out price, which is index-linked to inflation.

b. The redistributed buy-out fund (RBF) pool, which is variable.

LEC ASSESSMENT

LECs are distributed by British energy regulator Ofgem. They are issued monthly, to accredited generating stations, for each MWh of renewable source electricity generated.

The LEC value is index-linked to the UK government’s inflation rate.

Once the inflation rate for a given calendar year is published, the LEC value for the compliance period that follows is fixed, as opposed to assessed.

Before the inflation rate for a given calendar year is published, the LEC value for the compliance periods that follow are forward assessments made by ICIS.

The official inflation forecasts are used to form ICIS' forward LEC assessments. The assessments are updated monthly as actual inflation figures are published.

UK WHOLESALE POWER PRICE

The UK over-the-counter wholesale power price is assessed each UK working day by ICIS. Assessments are published in EDEM and not in ECEM. They are one component in the ROC assessment process. For the purpose of ECEM assessments, ICIS uses the EDEM wholesale power price at the close of the day, on the working day prior to publication.

For a full methodology of ICIS UK power assessments, please go to the ICIS website at http://www.icis.com/energy/electricity/europe/daily-markets-methodology/

ROC

The ROC assessment takes into account two main factors:

3a – Buy-out price

The buy-out price is index-linked to inflation.

Ofgem officially announces the buy-out price for the coming CP in early February, approximately two months before the CP begins.

Once it has been announced, the buy-out price for the compliance period that follows is fixed, as opposed to assessed.

Prior to the announcement, the buy-out price for the compliance periods that follow are forwards assessments made by ICIS.

Official inflation forecasts are used to form the forward assessments. These are updated monthly as actual inflation figures are published.

In ECEM, the buy-out price for a given period is the redistributed buy-out fund (RBF) value subtracted from the ROC value.

3b – The RBF

The RBF value for a given compliance period is not published until approximately eight months after the compliance period has ended. Therefore all periods published in ECEM for the RBF are assessed.

Electricity suppliers pay the set buy-out price dependent on how many ROCs they are short of their annual obligation. The payments go into a pool that is redistributed to suppliers that succeeded in meeting their obligation, on a pro-rata basis.

The process is administered by Ofgem, which makes a deduction from the pool prior to redistribution to cover its administration costs (in 2010/11, this deduction equated to 1.18% of the RBF pool). ICIS' assessment does not include this deduction.

The RBF value is dependent on the degree to which UK suppliers collectively fall short of, or meet, the annual RO.

DECC is required by statute to publish the level of the RO by 1 October preceding the CP.

The RBF value is assessed using forecasts of installed renewable power generation capacity per technology going forwards as a base, alongside DECC’s published RO.

ICIS' installed renewable power generation capacity per technology forecasts are consistently reviewed and updated on a monthly basis in line with project developments and actual renewable power generation figures.

The load factor applied for each technology is that applied in the DECC headroom calculation for the next compliance period, while relevant load factors used by DECC in its impact assessments are applied to any compliance periods thereafter.

To comment on any aspect of this methodology, or to propose changes, please contact Jamie Stewart, editor, European Clean Energy Markets, ICIS on +44 207 911 1933

ICIS continually develops, reviews and revises its methodologies in consultation with industry participants. Product specifications and trading terms and conditions are intended to reflect typical working practices prevalent in the industry.

ICIS' forward clean power price assessments will be modified in line with the results of any Renewable Obligation Certificate (ROC) banding reviews carried out by the UK’s Department of Energy and Climate Change (DECC).

Grandfathering under the renewables obligation (RO) is accounted for in ICIS' forward clean power price assessments.

Methodology last updated:

4 September 2012 – 10 months after report first published