This is the Supplier Compensation Reference Price Methodology Document Version 1.0 relating to calculating compensation cashflows for Virtual Trading Party actions in Settlement.

This document is Effective from: 07 November 2024

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AMENDMENT RECORD

Version	Date Approved	Description of release	Changes Included	Committee
1.0	06/10/2024	7 November 2024 Standard Release	P415	Panel 339/03

1 INTRODUCTION

This document is the Supplier Compensation Reference Price Methodology Document. It describes the Methodology approved by the BSC Panel for the purpose of obtaining a Supplier Compensation Reference Price to be used for the purpose of calculating Compensation due to Virtual Trading Party (VTP) activity in the Wholesale Energy Market.

Section T1.16 of the Balancing and Settlement Code (BSC) requires the BSC Panel to establish this document (and subsequently have it in force at all times). This requirement arose from implementation of BSC Modification Proposal P415 (‘Facilitating access to wholesale markets for flexibility dispatched by Virtual Lead Parties’). Its purpose is to describe the approved Supplier Compensation Reference Price Methodology for calculating the price to be applied to Compensation volumes for deviation volumes delivered by VTPs in the Wholesale Energy Market.

1.1 Why does the BSC require a Supplier Compensation Reference Price Methodology Document?

The implementation of BSC Modification P415 introduces both the role of VTP and the concept of Supplier compensation. A VTP can trade on the Wholesale Energy Market through Trading Secondary BM Units. This has an impact on Suppliers that have correctly hedged for their Customers usage as a VTP will instruct a Customer to deviate from their expected usage and a Supplier will therefore be exposed to this.

A Suppliers Imbalance position will be corrected for VTP actions using the arrangements that were introduced by BSC Modification P344 (‘Wider Access & Project TERRE’) so to make a Supplier completely whole, Supplier Compensation has been introduced. This Compensation will be paid or received by Suppliers that are impacted by a VTP action in the Wholesale Energy Market and a mutualisation of all Suppliers based on their market share in any given Settlement Period.

Where a VTP instructs a Customer to consume less or generate more the Supplier will have purchased Energy that it is now unable to sell so will receive compensation paid for from a mutualised pot of all Suppliers based on Final Demand Market share.
Where a VTP instructs a Customer to consume more or generate less the Supplier will be able to sell Energy that it did not have to purchase, so will pay compensation to a mutualised pot of all Suppliers where each Supplier will be paid a share based on their Final Demand.

In order for compensation to be paid between Suppliers, a reference price will be required. This price should reflect the wholesale cost of electricity. To accurately reflect this an approved methodology is necessary, which looks at the wholesale cost over a reasonable time period and also accounts for different hedging strategies employ ed by electricity Suppliers.

For the avoidance of doubt, any queries on the Supplier Compensation Reference Price Methodology and the Wholesale Energy Market compensation arrangements should be directed to Elexon Support.

1.2 Scope of the Supplier Compensation Reference Price Methodology Document

This Supplier Compensation Reference price Methodology Document is used to determine the Supplier Compensation Reference Price to be used by the Settlement Administration Agent (SAA) when calculating the compensation required to be assigned to each Supplier where a VTP has impacted them in the Wholesale Energy Market. As well as the compensation assigned to every Supplier that has a positive Final Demand in a particular Settlement period where a VTP has been active.

Figure 1 summarises the context of the Supplier Compensation calculations described in this document:

The Supplier Compensation Reference Price Methodology Document contains the following information:

(a) Details of where the Supplier Compensation Reference Price is sourced

(b) The processes that will be used to make changes to this Supplier Compensation Reference Price Methodology Document.

It does not include:

(a) Details of third party methodologies for calculation of a wholesale cost with uplifts

(b) Calculations used to determine compensation due to Suppliers

1.3 Main Users of the Supplier Compensation Reference Price Methodology Document

The main users of this Baselining Methodology Document are:

SAA;
Suppliers;
Virtual Trading Parties;
BSC Panel

2 ACRONYMS AND DEFINITIONS

2.1 List of Acronyms

The following is a list of acronyms used in this Supplier Compensation Reference Price Methodology Document:

BSC	Balancing and Settlement Code
BSCP	Balancing and Settlement Code Procedure
GB	Great Britain
SAA	Settlement Administration Agent
VTP	Virtual Trading Party

2.2 List of Definitions

The following is a list of definitions used in this Supplier Compensation Reference Price Methodology Document:

BSCCo	Has the meaning given to that term in Annex X-1 of the BSC.
Settlement Day	Has the meaning given to that term in Annex X-1 of the BSC.
Settlement Period	Has the meaning given to that term in Annex X-2 of the BSC.
Trading Secondary BM Unit	Has the meaning given to that term in Annex X-1 of the BSC.
Virtual Lead Party	Has the meaning given to that term in Annex X-1 of the BSC.
Virtual Trading Party	Has the meaning given to that term in Annex X-1 of the BSC.

3. METHOD FOR PRODUCING A SUPPLIER COMPENSATION REFERENCE PRICE

3.1 Source of the Supplier Compensation Reference Price

The value required for the Supplier Compensation Reference Price will be taken from the wholesale cost component of the Ofgem Price Cap Methodology

It will be a value for the Direct Fuel Cost Component of a Single-Rate Metering Arrangement averaged across the whole of GB.
Included will be various uplifts to account for variables deemed relevant by the Ofgem Price Cap Methodology such as:
- Shaping
- Forecast error
- Imbalance
- Transaction costs
- Basis risk
The date range covered by this price will be the same date range used for the Supplier Compensation Reference Price and therefore the Supplier Compensation Reference Price will change at the same frequency as the Ofgem Price Cap.
Where Ofgem no longer maintain the methodology to produce this value, the last valid Direct Fuel Cost Component with uplifts will remain in place as the Supplier Compensation Reference Price until BSCCo can replace the methodology.

4 PROCESS FOR AMENDING THIS SUPPLIER COMPENSATION REFERENCE PRICE METHODOLOGY DOCUMENT

Section T1.16.3 of the BSC requires the BSC Panel to keep this document updated:

1.16.3 The Panel shall review the Supplier Compensation Reference Price Methodology Document from time to time and in any event if the Authority withdraws the default tariff cap or makes a change to the methodology for determining the default tariff cap that impacts the Supplier Compensation Reference Price Methodology Document, and shall make such revisions as it considers necessary.

For the purposes of BSC Procedure BSCP40 (‘Change Management’) this document is a Category 3 BSC Configurable Item, meaning that it is not subject to the Modification Procedures in Section F (‘Modification Procedures’) of the BSC, or the Change Proposal process described in BSCP40. The BSC Panel has agreed the following process for changes:

It is the BSC Panel’s decision whether to review or change the Methodology, but BSCCo or any Supplier or VTP can request them to do so;
The BSC Panel may request assistance from BSCCo e.g. in analysing whether a change is needed;
Unless otherwise agreed by the BSC Panel, changes to the document will be drafted by BSCCo; and
the BSC Panel will consult with Parties in a manner appropriate to the scale and complexity of the changes before agreeing them.

It should be noted that any material change to the Methodology will require changes to Settlement systems, and the BSC Panel would take this into account when agreeing the effective date for any change.

Example of possible reasons for a Supplier or VTP to request a change to the Methodology includes (but are not limited to):

Ofgem no longer maintaining a Price Cap Methodology

CONTENTS

Supplier Compensation Reference Price Methodology Document