Appraisal Mechanism Analysis on Credit Limit Quantification of Wholesale Electricity Markets in the United States

Abstract

The essence of the credit management in an electricity market is the control of settlement risks by settlement agencies. The effective credit management is an important condition for effective and sustainable electricity transactions. By the induction and analysis of the credit management of 5 typical electricity markets in the United States, especially the mechanism of credit limit quantification, the existing electricity markets all post the certain unsecured credit limits to the market participants, and the credit limits are usually related to the participants' tangible net worth, enterprise type and credit ratings while the credit ratings are determined through the combination of the credit quantification of the third parties and market operators. As there are different sets and requirements in different markets for the factors to determine the unsecured credit limit, which include the basis of assets, the rate of assets, the maximum of unsecured credit limit and the index for credit assess. The credit risks in electricity markets include the risks for the transactions completed and the future risks for the transactions uncompleted. The access items of the above markets all make a claim on the requirements of assets situation for each market participant. Those who cannot meet the requirements are allowed to obtain the access qualification by the supplement of collaterals. Finally, the problems of credit management in China are proposed, including the lack of quantitative calculation, the unsoundness of supporting law, and unclear management function division and so on. It is suggested to study the credit system from three aspects: the research and establishment of the credit limit mechanism suitable for China's national conditions, the analysis on the credit risks for different types of transactions as soon as possible, the establishment of the market access mechanism and the hierarchical management of the market participants.