Gas market price spikes leave suppliers facing credit and collateral calls

As the market price of gas spikes still higher, energy suppliers are set to be hit by fast-changing requirements for collateral and credit lines in order to trade in the electricity market. Trading parties are set to be hit by a sudden ramp up in the so-called Credit Assessment Price (CAP) up two-thirds to £330/MWh at the end of next week.
Credit and collateral levels are set in relation to market prices and earlier this year had been falling from the peaks experienced in late 2021. Now the invasion of Ukraine has sent gas prices soaring still higher and the CAP is following.
The Credit Committee, which manages the CAP, consulted on 28 February on an increase from £190/MWh to £231/MWh on 17 March. But it says that is “no longer reflective of market data”. Instead it plans to raise the CAP to £330/MWh on that date.
It said, “The Credit Committee has made this decision as it considers that the current market situation is very volatile. The committee has been monitoring the market very closely. The market data shows a significant increase forward market prices compared with data on the day the consultation was issued.”
The Credit Committee can cancel the new CAP before 17 March, if market information supports that decision. But for market parties, uncertainty over the prospect of a sudden increase in credit and collateral requirements is an added risk.