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Glossary

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C

C.O.T.

See Change of Tenancy

CADL

Continuous Acceptance Duration Limit

CALF

See Credit Assessment Load Factor

Call Option

An option that gives the buyer (holder) the right, but not the obligation, to buy a futures contract (enter into a long futures position) or physical commodity for a specified price within a specified period of time in exchange for a one-time premium payment. It obligates the seller (writer) of the option to sell the underlying futures contract (enter into a short futures position) or commodity at the designated price, should the option be exercised at that price.

Capacity

In reference to electricity, the maximum load that a generating unit or generating station can carry under specified conditions for a given period of time without exceeding approval limits of temperature and stress.

Capacity Mechanism

A capacity mechanism explicitly rewards the provision of capacity. Proposals for a capacity mechanism were part of the Government‟s Electricity Market Reform (EMR) consultation document, and the July 2011 publication of the EMR White Paper confirmed that a capacity mechanism would be implemented.

Carbon Reduction Commitment

The Carbon Reduction Commitment (CRC) is an innovative climate change and energy saving scheme for the UK. It will encourage improvements in energy efficiency which can save organisations money. The scheme has been designed to generate a shift in awareness in large organisations especially at senior level, and to drive changes in behaviour and infrastructure.

The scheme is also a central part of the UK’s strategy for controlling our carbon dioxide (CO2) emissions. It will tackle CO2 emissions not already covered by Climate Change Agreements and the EU Emissions Trading System. This will help reduce the country’s carbon footprint to deliver the ambitious emissions reduction targets set in the Government’s Climate Change Act. The scheme started in April 2010

Cash-Out Arrangements

Arrangements whereby generators and suppliers pay or are paid for imbalances i.e. shortages and surpluses of power relative to their contracted commitments.

CCGT

See Combined Cycle Gas Turbine

CCL

See Climate Change Levy

CDCA

Central Data Collection Agent

CfD

Contract for Differences - A contract designed to make a profit or avoid a loss by reference to movements in the price of an underlying item. The underlying item is not bought or sold itself.

CfD

Contract for Difference

Change of Tenancy

Current customer has moved away and new occupier is present at the supply point.

CHP

See Combined Heat & Power

Churn rate

Churn is typically measured as the volume traded as a multiple of the underlying consumption or production level of a commodity.

Clean Spread

The generating margin for Gas and Coal Fired electricity plant after the cost of EU-ETS carbon allowances has been removed.

Clearing

The process by which a central organisation acts as an intermediary and assumes the role of a buyer and seller for transactions in order to reconcile orders between transacting parties.

Clearing House

An organisation which guarantees the performance and settlement of futures and options contracts, e.g. the London Clearing House in London or the Options Clearing Corporation in Chicago.

Climate Change Levy

A tax on the supply of electricity and gas collected by Suppliers from business consumers.

Clip size

The size (usually in MW) of the contract to be traded.

CMRS

Central Meter Registration Service

Cogeneration

The simultaneous production of electricity and another form of useful energy (such as heat or steam) through the sequential use of energy, resulting in increased efficiency of fuel use.

Collateral

An obligation or security linked to another obligation or security to secure its performance.

Combined Cycle Gas Turbine

A gas fired electricity generation plant.

Combined Heat & Power

Simultaneous generation of usable heat and electrical power in a single process. A generating facility that produces electricity and another form of useful thermal energy (such as heat or steam) used for industrial, commercial, heating or cooling purposes.

CoMC

Change of Measurement Class

Commodity Future

A futures contract on a commodity. Unlike financial futures, the prices of commodity futures are determined by supply and demand rather than the cost-of-carry. Commodity futures can, therefore, either be in contango (where futures prices are higher than spot prices) or backwardation (where futures are lower than spot prices).

Commodity Swap

Commodity swaps enable both producers and consumers to hedge commodity prices. The consumer is usually a fixed payer and the producer a floating payer. If the floating-rate price of the commodity is higher than the fixed price, the difference is paid by the floating payer, and vice versa. Usually only the payment streams, not the principal, are exchanged, although physical delivery is becoming increasingly common. Swaps are sometimes done to hedge risks that cannot readily be hedged with futures contracts. This could be a geographical or quality basis risk, or it could arise from the maturity of a transaction.

Compliance

The status achieved by a Participant when all requirements of this TA Change Compliance script have been satisfied.

Consolidation

Generators will generally have a target energy output for any given time period, but not all will achieve this exact figure. Some will over-produce and some will fail to meet their target. Consolidation combines the partial or total outputs of a number of generators into one energy account so over- and under-producing accounts are combined to cancel each other out, resulting in a stable aggregate output.

Consolidation can be particularly attractive for generation sources that are less less predictable than conventional generation, such as wind generation. Consolidation works best when the causes of the variation in generation output are not related. For example a wind farms in the same region are likely to experience peaks and troughs in output at around the same time and so consolidation is more likely to magnified variations in output rather than smooth them out. By contrast, combining a wind generator, a combined heat and power plant and a biomass plant is likely to bring a more stable output.

Under BETTA, generators and suppliers of electricity are incentivised to balance their physical and contractual positions. Under this incentive generators who produce more electricity than they are contracted to supply are paid for "spilling" the surplus electricity onto the grid. Likewise, generators who fail to supply the contracted amount of electricity must pay for this shortfall.

Generators who spill are paid a price for this excess that is generally lower than they would get in the open market.  Those who have a shortfall have to pay a price that is generally higher than it would normally cost in the open market.

Almost all smaller generators have contracts to consolidate their output, many with major generators or suppliers. These contracts generally include elements of embedded benefit and energy price and are not always explicit about how much benefit is specifically attributed to consolidation. Independent consolidators (those who do not own generation assets or demand) can offer the consolidation service by combining many smaller generators' output and specialising in value-added products.

Consolidator

A party that buys the output of a number of generators and trades it in the wholesale market.

Also see: Consolidation

Contango

Term used to describe an energy market in which the anticipated value of the spot price in the future is higher than the current spot price. When a market is in contango, market participants expect the spot price to go up. The reverse situation is described as backwardation.

Contract Notification

A contract notification details the volume of any energy bought and sold between participants. A single agent acts on behalf of both trading parties, and submits a single contract notification prior to gate closure.

Contracted Position

Parties must notify their contracted position to the System Operator for each settlement period through the process of Contract Notification. A long contracted position indicates that a party has contracted more supply than demand and a short contracted position vice versa. Any difference between a participants contracted position and its metered position will result in that party being out of balance.

CoP

Code of Practice

Correlation

A measure to the degree to which changes in two variables are related. Correlation ranges between plus one (perfect correlation - the same amount of movements in the same direction) and minus one (perfect negative correlation - the same amount of movement in opposite directions). Like volatility, it can be calculated from historical data, but such calculations are not necessarily good predictors of behaviour.

If the correlation between markets is known, an option position in one market can be offset against another with similar direction and volatility. This is advantageous, because it can circumvent difficult hedging environments and can reduce costs.

Correlation is also important for the pricing of some options, particularly those offering exposure to more than one market variable. The payout of a spread option or a yield curve option is based on the correlation between two underlying markets separated by space, tie or assets, while that of a quanto product will depend on the extent of the relationship between movements in the underlying and movements in the exchange rate.

CoS

Change of Supplier

Counterparty

Conventionally the parties to a trading agreement are called counterparties. This term is used rather than buyer/ seller as the buying/ selling roles sometimes reverse in trading.

Counterparty Risk

The risk that a counterparty to a contract defaults and does not fulfil obligations.

Crack Spread

A type of commodity-product spread involving the purchase of crude oil futures and the sale of gasoline and heating oil futures.

CRC

See Carbon Reduction Commitment

Credit Assessment Load Factor

Each BM Unit has a Credit Assessment Load Factor (CALF) value, which is a measure of their average generation/demand as a ratio of their maximum for the current BSC Season. These values are calculated seasonally for each BM Unit, and each Season’s values are published at the beginning of the preceding Season.

CALF is used in the Energy Indebtedness calculation along with Generation or Demand Capacity (GC/DC) until II data is available. An exception is for Interconnector BM Units and those Generation Units with Credit Qualifying status who instead use Physical Notifications during this period.

Further details on CALF and how it is calculated can be found at: https://www.elexon.co.uk/operations-settlement/balancing-mechanism-units/credit-assessment-load-factor/

 

Credit Risk

Credit risk, or default risk, is the risk that a financial loss will be incurred if counterparty to a (derivatives) transaction does not fulfil its financial obligations in a timely manner. It is therefore a function of the following: the value of the position exposed to default (the credit or credit risk exposure); the proportion of this value that would be recovered in the event of a default; and the probability of default. Credit risk is also used loosely to mean the probability of default, regardless of the value that stands to be lost.

Credit Worthiness

Financial accountability.

Curve

A time-series of prices for near to longer-term products.

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