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SUBSCRIBER NOTE: ICIS calls for comment on UK calendar switch

31 Jul 2013 18:39:00 | edem

The UK power market is switching its standard contract definitions from the EFA calendar to Gregorian calendar delivery periods, and ICIS would like to invite subscribers to comment on how to manage the change in contract delivery periods.

The members of the UK power trading committee from the Futures and Options Association (FOA), representing most of the largest and most active UK power market participants, have agreed to make the switch in liquidity from 1 November 2013, with testing periods in the weeks beforehand (see EDEM 20 June 2013).

The change will be made for contracts for delivery from Winter '14 Baseload onwards.

Given the use of ICIS' price assessments within the industry, ICIS is aware that any change-over should allow a suitable time period for subscribers to adapt. ICIS is also keen to ensure that any proposal should meet the needs of the industry.

Methodology change

ICIS intends to switch its UK power price assessment methodology from Friday 1 November 2013, in line with the expected liquidity switch on the UK power market. Thereafter, all UK power price assessments from Winter '14 delivery and component contracts onwards will be defined as delivered on a Gregorian calendar basis.

On the day of the liquidity switch, price differentials for contracts affected by the switch will not be quoted.

Pricing impact

On 1 November 2013, the methodology will switch for the last six seasons from EFA to Gregorian delivery periods already quoted, for Winter '14 to Summer '17, and the last quarter quoted, Q4 '14.

See chart for delivery methodology and rollover dates for each contract affected.

ICIS will continue to calculate spark and dark spreads and European Baseload spreads based on its UK power price assessments, taking the methodology switch into account. On the day of the liquidity switch, price differentials for contracts affected by the switch will not be quoted.

Annual contracts comprise an average of the front two seasons. ICIS proposes that the first annual contract quoted after the 1 November methodology switch will include the Gap 1 contract, weighted to reflect the length of delivery time. All annual contracts thereafter will be based on the Gregorian contracts, in line with ICIS methodology.

Gap contracts

ICIS will assess the six 'gap contracts', referring to the periods that fall between the EFA and Gregorian settlements for the seasons, to give the industry visibility.

These periods cover Baseload delivery for the dates below, inclusive:

Gap 1: 29-30 September 2014

Gap 2: 30-31 March 2015

Gap 3: 28-30 September 2015

Gap 4: 1-3 April 2016

Gap 5: 1-2 October 2016

Gap 6: 1-2 April 2017

ICIS proposes to assess these gap contracts and potentially EFA parallel contracts for a period of six months from 1 November. ICIS would review liquidity on each contract from 3 February 2014 to establish whether to extend these assessments beyond 31 March 2014.

Should ICIS decide to discontinue assessing these contracts, a minimum of 30 days' notice will be given.

Consultation

Question 1: Should ICIS list EFA contracts in parallel?

At the time of the liquidity switch on 1 November 2013, ICIS will be quoting six seasons, initially as EFA delivery, and then as Gregorian.

Should subscribers find parallel EFA quotes useful, ICIS proposes to use the gap contracts above to calculate midpoint values for the UK power seasons already quoted for EFA delivery from 1 November 2013, ie, from Summer '14 to Summer '17.

The calculation would be made by weighting the number of hours in each delivery period, including the gaps, to give an alternative quote.

EFA Winter '14 Baseload would be calculated by multiplying the Gregorian Winter '14 Baseload value by the number of hours in the contract; added to the Gap 1 (29-30 September 2014) midpoint multiplied by the number of hours in that contract; subtracting the Gap 2 (30-31 March 2014) midpoint multiplied by the number of hours; and dividing the total by the number of hours in the EFA contract.

Or, EFA Winter '14 Baseload = ( (Gregorian Winter 14 Baseload x 4,368) + (Gap 1: 29-30 September '14 x 48) - (Gap 2: 30-31 March x 48) ) / 4,368

Other EFA seasons would be calculated:

EFA Summer '15 Baseload = ( (Gregorian Summer '15 x 4,392) + (Gap 2 x 48) - (Gap 3 x 72) ) / 4,368

EFA Winter '15 Baseload = ( (UK Gregorian Winter '15 x 4,392) + (Gap 3 x 72) + (Gap 4 x 72) ) / 4,536

EFA Summer '16 Baseload = ( (Gregorian Summer '16 x 4,392) + (Gap 4 x 72) - (Gap 5 x 48) ) / 4,368

EFA Winter '16 Baseload = ( (Gregorian Winter '16 x 4,368) - (Gap 5 x 48) + (Gap 6 x 48) ) / 4,368

EFA Summer '17 Baseload = ( (Gregorian Summer '17 x 4,392) - (Gap 6 x 48) / 4,368

Question 2: Should ICIS list EFA Peakload values?

Should subscribers find parallel EFA listings useful, ICIS proposes to use these gap contracts to calculate midpoint values for EFA Peakload contracts.

ICIS proposes to offer Peakload values for the first three gap delivery periods based on these assessments. The first three gap contract periods refer to working days, whereas gap contracts from Gap 4 (1-3 April 2016) onwards fall either predominantly or wholly on non-working days. ICIS would therefore calculate two EFA peakload seasons as well.

These would be calculated:

EFA Winter '14 Peaks = ( (Gregorian Winter 14 Peaks x 1,560) + (Gap 1: 29-30 September '14 x 24) - (Gap 2: 30-31 March x 24) ) / 1,560

EFA Summer '15 Peaks = ( (Gregorian Summer '15 Peaks x 1,572) + (Gap 2 Peaks x 24) - (Gap 3 Peaks x 36) ) / 1,560

Question 3: Should ICIS provide new FTP codes for the UK power price assessments reflecting the methodology switch to Gregorian calendar delivery?

ICIS proposes to provide a new coding series for all contracts delivered according to the Gregorian calendar. This includes contracts that were initially assessed under the EFA calendar and then switched to Gregorian on 1 November 2013 (download a pdf of the table here). For these contracts, the coding would also change on that date to the new series.

Any contracts still using the EFA calendar, including any assessments ICIS publishes in parallel with the Gregorian-based contracts, will continue with the existing, EFA-based, coding series.

Transparency

ICIS encourages all market participants to contribute to the process of price discovery. This includes provision of all deals, whether voice-, screen-brokered or bilateral.

Please send all responses, comments and suggestions on this issue by Friday 16 August to Zoe Double, European Daily Electricity Markets editor, at zoe.double@icis.com or call +44 (0)207 911 1875.

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