Comments on: OPINION: Contracts for difference – or for a different kind of wholesale market?

By: Nicholas

Nicholas — Fri, 25 Aug 2017 09:59:07 +0000

Hi Mark – To match the Baseload MRP a generator will sell a slice each day so if this causes the MRP to dip then surely after a few days traders will see an arbitrage opportunity of MRP versus outturn (all be it with price change risk) and buy at the MRP. With DA I see where you are coming from but there could be a solution. The CfD has a mechanism to enable the MRPs to be changed if certain conditions are met and there are change controls in the CfD if a change benefits all. So if the case can be made for a combination of long and short term reference prices for the intermittent technologies then the CfD should go that way. Is there another point here though which is that reference prices are struggling to gain traction in the electricity market?

By: Mark Meyrick

Mark Meyrick — Thu, 24 Aug 2017 11:57:20 +0000

Good points Nic, and I admit that I failed to distinguish between the baseload generators and the intermittent generators market reference price. Nevertheless, all the intermittent generation, often hedged forward at the moment, will be dumped in the DA market – and that will have an effect.
As for the baseload generators MRP, well this is nothing more than cloud cuckoo land to think that a 3.2 GW baseload generator will be able sell that sort of volume forward without moving the index that their CFD is being referenced against – thus creating an even larger CFD payment than would be contemplated in a ‘normal’ market. That is because there simply isn’t enough liquidity to absorb those kind of volumes. Currently large generators carefully feed the volume into the market so as not to move the market. EDF doesn’t have to take such care with the CFD in their back pocket – they can just dump it. And this discussion doesn’t begin to address the point as to which index would be an appropriate MRP – that will be quite a challenge.

By: Nic Rigby

Nic Rigby — Thu, 17 Aug 2017 16:44:56 +0000

I think the basis of your argument is based on a number of statements which I would not consider to be correct and hence the conclusions which I am less knowledgeable on may also be incorrect. Firstly CfD generators are not guaranteed their strike price. They are guaranteed a strike price – Market Reference Price. For Base Load generators the market reference price is based on seasonal forward prices so if a generator wants to ensure their revenue they are motivated to sell ahead so as to match the market reference price. For intermittent generators the market reference price is set day ahead so in this case a generator wanting to match the market reference price will be motivated to sell day ahead. This motivation is not driven by the CfD it is a function of intermittent generation. So rather than suggesting that the CfD is the cause of the problem I suggest you look elsewhere. Intermittent generation is a fact of life so as it is now widely recognised we need to find ways to work with it hence the interest in storage and DSR.