Capacity Market (CM) revenues are calculated by going through all awarded contracts for each auction and delivery year, and mapping them to assets (as you can imagine, this is one of our team’s favourite tasks). We use the final auction results provided by the Electricity Market Reform Delivery Body to do this.
Revenues are calculated on a monthly basis, by applying a monthly weighting factor to the total yearly revenue applicable to each individual asset - basically, we take the annual revenue and divide it by twelve! The weighting factor determines the percentage of the annual revenue paid to the participant each month. The yearly revenue applicable to each individual asset is calculated by multiplying the de-rated capacity of the asset by the clearing price for that auction and delivery year.
CM contracts are often multi-year contracts (e.g. 15 years). We use the UK Consumer Prices Index (CPI) to adjust the capacity clearing prices for auctions to calculate revenues for years after the initial delivery year, which accounts for inflation.
We also account for secondary traded contracts where we can see volumes have moved between Capacity Market Units (CMUs). In some cases, (bilateral) agreements between CMUs in the secondary trading process include a fee (particularly with aggregator counter-parties). These fees are invisible to us, so we do not factor in secondary traded volumes and revenues.
To learn about the Capacity Market you can check out our Modo Academy video here.