Introducing ICIS data used in the price cap€¦ · Introducing ICIS data used in the price cap Zoe Double Head of Power. 2 ... Independent –not actively trading in the market,

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Introducing ICIS data used in the price cap

Zoe Double

Head of Power

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ICIS’ role in the energy markets

ICIS’ data used in price cap calculations

Putting ICIS’ methodology into practice

Agenda

Disclaimer: ICIS accepts no liability for commercial decisions based on the content of this presentation

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Who we are

ICIS provides market intelligence services to the global petrochemicals, energy and fertilizer markets. We are part of the Data Services division of Reed Business Information (RBI).

RBI is a leading business to business information publisher. The other major data services include Bankers Accuity and Flight Global. Other key divisions within RBI focus upon marketing solutions and leading magazine brands. RBI is part of Reed Elsevier.

Reed Elsevier is one of the world’s largest professional information companies, employing over 35,000 people in 200 locations worldwide, with annual revenues of just over £6 billion in 2011. It is a leading provider of professional information and online workflow solutions in science and medical (Elsevier Science), legal, risk information and analytics (LexisNexis), and business sectors (RBI and Reed Exhibitions, the world’s largest exhibition organiser).

http://www.icis.com/Home/Default.aspx

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ICIS’ role in the energy markets


Best known for being the most widely used reference for spot gas prices in Europe

The world’s longest price history database for European gas and power markets and global LNG trade – 20+ years of UK gas and power references

The largest specialised gas, LNG and power reporting teams

ICIS data is the benchmark for UK and European energy market information

Ofgem’s Supplier Cost Indicators use ICIS data

UK Competition and Markets Authority energy investigation used ICIS data

ICIS Power Index launched 2014, historical data from 2007 – aimed at consumer/media audience to help transparency

ICIS sponsored and coordinated Parliamentary Working Group on the UK gas market

ICIS in Energy


To provide independent market price references and encourage market transparency

Price reporters take information from the whole market

The major price reporting agencies have been designing methodologies and monitoring markets for decades, with an open and consultative process to manage change

The value of independent price reporting organisations:

Neutral – without a trading position, price reporting agencies are trusted by both buyer or seller.

Independent – not actively trading in the market, so free to talk to a wide range of market participants to find the best price (and using journalistic skills to assess the information we’re given).

Transparent – we show the market the data we use, and our methodology (how we reach our prices) is public.

ICIS’ role within the energy markets

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ICIS’ data used in price cap calculations


The Competition and Markets Authority (CMA) imposed a prepayment charge restriction as part of its Energy Market Investigation

The price cap applies from 1 April 2017 to 31 December 2020

The level is updated every six months on 1 April and 1 October, with Ofgem calculations based on costs faced by suppliers

Wholesale energy costs are calculated from ICIS data – Q+1 to Q+6 for gas; season+1 to season+3 for electricity

Wholesale prices take into account a six-month observation period, a two-month time lag, and 12-month delivery period. So for 1 April 2017 update, price cap energy costs would be calculated based on the average for annual delivery from 1 August 2016 to 31 January 2017.

All data is available from https://www.gov.uk/cma-cases/energy-market-investigation

Competition and Markets Authority price cap

https://www.gov.uk/cma-cases/energy-market-investigation

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ICIS’ market valuations

Blue dots represent actual trades

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ICIS’ market valuations

Price assessments

The value of a commodity at a designated point in time.

Uses multiple sources of information, including bids and offers, trades, and spread data.

Indices

A calculated price based on a volume-weighted average of transactions.

Uses deals only.

Includes deals done over a specific time period – 15 minutes to 1 month.

Blue dots represent actual trades

All day volume weighted

index 72.382

Closing assessment

72.5


Price assessments in detail

ICIS gives priority to the highest bid and the lowest offer at the close 16:30 London time close for UK gas and power markets

Priority order of data for assessment:

bid-offer spread – highest bid and lowest offer

trade

spread trades (geographic or commodity)

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Sources of data

We collect information as widely as possible from active participants in the markets.

Sources must be active market participants –verified by a supply licence or are registered to trade at a relevant venue.

Market information is corroborated by reporters, using their market knowledge and analytical skills to source and cross-check data.

So what do we see?

Sets of market deals from many participants –cross-checked and de-duplicated by ICIS’ data team

Deals transmitted direct from Trayport Trading Gateway by companies signed up to the service

Companies send screen prints from Trayport and broker screens throughout the day

Companies send closing bid/offer spreads from front and back office

Companies talk to reporters via phone and IM throughout the day to give price information and help us cross-check and explain what we’ve seen

Reporters use supply and demand data from TSOs and others to cross-check reasons for price moves.

More active participant market sources are welcome

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Price assessment transparency

Key codes show the primary source of data used, and give subscribers clarity on how ICIS reached its decision

B – Bid/offer

T – Transaction

S – Spread – ie, spreads to another market at closing time, or moving a contract in line with another day on day (from market info that day).

F – Fundamentals

I – Interpolation/extrapolation – eg, matching component contracts.

Indicative pricing – fewer than three sources, or only wide spreads available.

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Additional considerations

16:30 market close for gas and power allows for margin calculation and accurate hedging

Strong liquidity on the gas market for market close at 16:30

Market close is in line with the second UK power trading window mandated by Ofgem’s‘Secure and Promote’ licence condition launched in 2014

ICIS confirms, validates and publishes individual trades – allows index validation, but also allows detailed analysis of liquidity trends and developments

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Why ICIS price references are trusted

ICIS policies and processes comply with the IOSCO Principles for Oil Price Reporting Agencies

The Principles were initially designed for oil markets but at IOSCO’s suggestion all major PRAs have committed to comply with them across all commodities.

ICIS had its fourth successful external audit on compliance with these principles in September 2016 for European gas, crude oil, European fertilisers and a wide range of global petrochemicals.

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Putting ICIS’ methodology into practice

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UK power – bids and offers reported 19 January 2017

UK power 19/01/2017

Reporter Henry Evans

XXX 13:08 XXX 15:56 XXX 16:18 XXX 16:25 XXX 16:29 XXX 16:30 XXX 17:05

Baseload Bid Offer Bid Offer Bid Offer Bid Offer Bid Offer Bid Offer Closing midpoint

February '17 53.25 54 53.3 53.9 53.26 53.41 53.2 53.41 53.16 53.4 53.2

March '17 51.24 51.5 51.15 51.3 51.2 51.3 51.1 51.25 51.12

April '17 49.4 49.75 49.3 49.45 49.3 49.45 49.34

May '17 45.97

Q2 '17 46.9 46.68 46.86 46.55 46.65 46.55 46.6 46.5 46.72 46.64

Q3 '17 44.14 44.67 44.33

Q4 '17 47.58

Q1 '18 49.72

Summer '17 45.5 45.85 45.6 45.8 45.39 45.6 45.4 45.6 45.4 45.6 45.38 45.6 45.48

Winter '17 48.75 49 48.75 48.98 48.65 48.8 48.65 48.8 48.65 48.8 48.64

Summer '18 41.09 41.33 40.8 41 40.82 41 40.81 41.02 40.8 41.02 40.87

Winter '18 36 39.25 44.83 45.09 44.62 44.87 44.7 44.87 44.66 44.87 44.79

Summer '19 39 42 37 39.25 38 38.75 38 38.75 36.99 38.75 38.58

Winter '19 39 42 40 41.75 40 41.75 41.04

Summer '20 43.79


Highest bid and lowest offer at 16:30 market close:

Summer ‘17

16:25 – bid at £45.40/MWh, offer at £45.60/MWh



Winter ‘17




What other supporting evidence do we have?

Initial evidence

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Trade source example

DateTime DealID Aggressor Action Price Volume Product Contract

19/01/2017 10:38 5E+06 Sell 49.02 10 UK Baseload Winter 17





19/01/2017 10:51 4E+06 Sell 46 5 UK Baseload Summer 17

19/01/2017 10:53 4E+06 Sell 45.9 5 UK Baseload Summer 17





19/01/2017 13:54 4E+06 Sell 45.5 5 UK Baseload Summer 17








All notes, pricing sheets, trades (in raw form) archived

All calls/IMs/emails completed and attempted are logged

Checklists completed after every assessment

Weekly spot checks by Editor

Editor’s check then overseen by Managing Editor

Compliance – checklists and data retention


All our price assessments are accompanied by market commentary:

The reasons for market moves

Additional data and information to support pricing.

News coverage includes:

Daily news stories – original or adding additional information

Market analysis – trends in prices and liquidity

Focus – more in-depth commentary on key issues

New media, including podcasts, webinars and infographics

We specialise in market information, including news and commentary

Two-thirds of ICIS’ power and gas news is original and not found anywhere else (2016 figures)

Price trends explanation and analysis


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Questions?


Please visit our website at www.icis.com

Our daily market reports covering UK energy:

European Spot Gas Markets

European Daily Electricity Markets

Methodologies available from:

https://www.icis.com/compliance/

To arrange a trial, please contact [email protected] call +44 207 911 1919

To find out more

http://www.icis.com/

https://www.icis.com/compliance/

mailto:[email protected]

Documents

Introducing ICIS data used in the price cap€¦ · Introducing ICIS data used in the price cap Zoe Double Head of Power. 2 ... Independent –not actively trading in the market,