Contract Events

There are various provisions in the CFD contract which deal with events that may occur during the term of the CFD contract.

The contract events covered here are:

 

Installed Capacity

A Generator nominates their Initial Installed Capacity Estimate through the CFD allocation process and it is included in the Generator’s signed CFD contract. The CFD contract allows for reductions in the Initial Installed Capacity Estimate through two routes:

  • Permitted Reductions, and
  • Relevant Construction Events (RCE).

If accepted, these reductions result in a revised capacity.

The CFD contract requires the Final Installed Capacity to be no greater than the Installed Capacity Estimate and no less than the Required Installed Capacity.  The Required Installed Capacity for most Generation Technologies is 95% of the Installed Capacity Estimate (or the revised capacity, if applicable) but is 85% for offshore wind projects.  Different requirements apply to Eligible Low Capacity Facilities.

Adjustment to Installed Capacity Estimate: Permitted Reduction

Before the Milestone Delivery Date, a Generator is permitted to request one reduction to their Installed Capacity Estimate if they believe that the Installed Capacity will be lower than the Installed Capacity Estimate. The ICE Adjustment Notice specifies the capacity reduction which the Generator thinks is necessary and the revised Installed Capacity Estimate (Revised ICE) that will result. The Revised ICE cannot be less than 75% of the Installed Capacity Estimate. Please note that the ICE Adjustment Notice is irrevocable and the Installed Capacity Estimate cannot be subsequently increased.

We recommend that you contact your contract manager as soon as possible if you think you may need to adjust your Installed Capacity Estimate.

Adjustment to Installed Capacity Estimate: Relevant Construction Event

The Installed Capacity Estimate can be reduced if a Relevant Construction Event occurs which affects your Project. You must send an RCE Notice at least three months before the Longstop Date, accompanied by a Directors’ Certificate. Please note that once an RCE Notice is issued it is irrevocable and, if the Installed Capacity Estimate is reduced, it cannot be subsequently increased.

We recommend that you contact your contract manager as soon as possible if you think a Relevant Construction Event has occurred.

 

Change Control

The CFD contract allows for three types of amendments:

  • Material Amendments, which must be agreed with Generators;
  • Technical Amendments which are classified as General Amendments and do not need to be agreed with Generators; and
  • Technical Amendments which are not classified as General Amendments and which generally must be agreed with Generators.

The process for implementing such changes is set out in the CFD contract.

Material Amendment

A Material Amendment is a Proposed Amendment which would have an adverse effect on the revenues and/or costs of the Generator which are not fully compensated or which would have an adverse effect on the overall balance of risks, benefits and liabilities for the Generator, pursuant to the CFD contract.

If Low Carbon Contracts Company Ltd (“LCCC”) issues an Amendment Notification proposing a Material Amendment, Generators have 20 Business Days from receipt to respond by issuing a Material Amendment Response Notification.  Within 10 Business Days of receipt of the Material Amendment Response Notification, LCCC will meet with the Generator to discuss and negotiate to agree the Proposed Amendment. A Material Amendment shall only become effective if agreed to in writing by both parties.

Technical Amendment and General Amendment

A Technical Amendment is a Proposed Amendment which is not a Material Amendment or is required to correct a manifest error in the CFD contract.

A General Amendment is a Technical Amendment which is proposed for all CFD contracts or all CFD contracts of a particular category.

If the Technical Amendment is a General Amendment, this will be stated by LCCC in the Amendment Notification. Such an amendment becomes binding on the Generator unless 75% of the Generators whose CFD contracts are affected send us a Technical Amendment Response Notification within 20 Business Days of receipt of the Amendment Notification from LCCC.

Where more than 75% of affected Generators have sent a Technical Amendment Response Notification, depending on the content of the notification, the matter may be subject to the Dispute Resolution Procedure or LCCC may consider the objections and make amendments as it deems appropriate. If no Technical Amendment Response Notifications are received which meet the criteria, the amendment will become binding on the Effective Date as stated in the Amendment Notice.

Technical Amendment which is not a General Amendment

If the Technical Amendment is not a General Amendment, this will be stated by LCCC in the Amendment Notification. In this situation, the Generator has 20 Business Days from receipt of the notification to respond with a Technical Amendment Response Notification. If the Generator does not send LCCC a Technical Amendment Response Notification within the relevant timeframe, the Technical Amendment will become effective.

If the Generator raises an objection to the classification of the Proposed Amendment as a Technical Amendment, this is subject to the Dispute Resolution Procedure.  If the Generator raises objections other than to the classification of the Proposed Amendment, then we will consider the objections and may choose to modify the proposed amendment but are not required to do so, and the Proposed Amendment (as may have been amended) shall become binding on the Parties.

We will not usually issue revised CFD contracts as a result of amendments. It is therefore the responsibility of the Generators to ensure they retain copies of amendments.

If you have any concerns about a Proposed Amendment we recommend you contact your contract manager at the earliest opportunity.

 

Disputes

If a Dispute arises, the Parties are required to endeavour in good faith to resolve it through negotiation.  All Disputes are governed by and construed in accordance with English law. The Parties must continue to comply with all of their respective obligations notwithstanding that a Dispute is in the process of being resolved in accordance with the Dispute Resolution Procedure set out in the CFD contract.

Dispute Resolution Procedure

The Dispute Resolution Procedure (set out in the CFD contract) consists of three main procedures as follows:

  1. unless the CFD contract specifically excludes otherwise, the Parties must firstly seek to resolve the Dispute by convening a meeting of Senior Representatives of the Parties (being one or more senior employees or officers selected by a Party to represent it).

If the Senior Representatives are unable to resolve the Dispute, it can be:

2. referred to an Expert for determination in accordance with the Expert Determination Procedure, provided the Parties agree to use such procedure, or

3. referred by either Party to an Arbitral Tribunal for resolution in accordance with the Arbitration Procedure.

Disputes specifically contemplated in the CFD contract

Without limitation, the CFD contract specifically contemplates the Dispute Resolution Procedure being used to raise and resolve Disputes regarding:

  • whether or not Operational Conditions Precedent have been fulfilled;
  • whether or not a Milestone Requirement has been fulfilled;
  • whether or not a Relevant Construction Event has occurred and, if it has occurred, whether the RCE-Adjusted Installed Capacity Estimate specified in the RCE Notice is correct or not;
  • Billing Statements – but note that Disputes relating to the calculation of the Loss Adjusted Metered Output in respect of a Settlement Unit are treated as Trading Disputes under the Balancing and Settlement Code (BSC) and must be resolved in accordance with the provisions of the BSC and not in accordance with the Dispute Resolution Procedure set out in  the CFD contract;
  • whether or not a Qualifying Change in Law (“QCiL”) Construction Event or a QCiL Operations Cessation Event has occurred; and
  • whether or not an Amendment Notification constitutes a Technical Amendment.

Please note there are certain types of Disputes to which resolution by Senior Representative is not applicable. There are also alternative dispute resolution procedures outlined in the CFD contract for particular types of Disputes.  We recommend you refer to the relevant part of the CFD contract for further information regarding your Dispute.

Raising a Dispute

Generally, Disputes are raised by a Dispute Notice [link to Dispute Notice on Pro Formas page].  However, there are other pro forma dispute notices prescribed in the CFD contract for raising certain specified Disputes.  For example, there is a Billing Statement Dispute Notice for Billing Statement Disputes, a CiAL Dispute Notice for a Dispute regarding the outcome of a Change in Applicable Law Review, a BMRP Dispute Notice  for a Dispute regarding the outcome of a Baseload Market Reference Price (“BMRP”) Annual Review or a BMRP Principles Review and a IMPR Dispute Notice for a Dispute regarding the outcome of an Intermittent Market Reference Price (“IMRP”) Principles Review.  A full set of pro forma Generator Notices are provided on this website.

If you have a concern, we encourage you to contact your contract manager at Low Carbon Contracts Company Ltd at the earliest opportunity.

 

Transfers

Generator Transfers

In general terms, Generators are not permitted to assign or transfer to any person any rights, benefits or obligations under the CFD contract or CFD Documents without our prior written consent. If Low Carbon Contracts Company Ltd (“LCCC”) do consent to a transfer of all, or substantially all of the Generator’s rights, benefits and obligations under the CFD contract and any other CFD Document to a Transferee, the Generator must transfer ownership of the Facility to the same Transferee at the same time as the Transfer occurs.

A Generator may assign without LCCC’s consent, but on giving us 10 Business Days written notice, all (but not part) of its rights and benefits under the CFD Contract and other CFD Document by way of security to or in favour of either a Lender, an Affected Person, a parent company of the Generator providing funding, or an agent or security trustee acting for any ofthese. If requested to do so, LCCC will enter into a Direct Agreement with these persons.1

Counterparty Transfers

LCCC is permitted to make certain transfers without Generator consent. For instance, we can:

  • transfer our rights and obligations under a Transfer Scheme in accordance with the Energy Act 2013;
  • assign all or any of our rights and benefits to any person on terms we consider appropriate; or
  • sub-contract or delegate to others the performance of any of our obligations, although we will remain liable for the delivery of our obligations under the CFD contract.

Where we assign all or any of our rights and benefits to any person, we will endeavour to give Generators 10 Business Days written notice specifying the identity of the Transferee and Transferring Rights and Obligations. Generators are required to be supportive in the implementation of these transfers.

If you wish to discuss a transfer we recommend you contact your contract manager at the earliest opportunity.

 
If you can’t find what you are looking for here, or in our FAQ section then please contact us at the details provided above.

 

Termination

The termination provisions set out in the CFD contract are divided into four categories: Pre-Start Date termination, default termination, Qualifying Change in Law termination and SCiL Compensation termination.

Pre-Start Date termination

Low Carbon Contracts Company Ltd (“LCCC”) have the right (but not the obligation) to terminate the CFD contract on the occurrence of the following events:

  • failure to deliver the Milestone Requirement Notice  by the Milestone Requirement Date;
  • failure to fulfil the Milestone Requirement by the Milestone Requirement Date;
  • where a Directors’ Certificate provided to accompany a Milestone Requirement Notice is unsatisfactory;
  • occurrence of a Termination Event;
  • failure to fulfil the Initial Conditions Precedent  within 10 Business Days of the Agreement Date; or
  • failure to fulfil the Operational Conditions Precedent by the Longstop Date.

If any of the above mentioned points becomes relevant to your contract prior to the Start Date you can be at risk of having your CFD terminated. We encourage you to talk to your Contract Manager at the earliest possible opportunity if you have any reasons to think you may be affected.

Default Termination

The CFD contract also includes provisions for termination after the Start Date if any of the following Termination Events have occurred:

  • the Generator becomes insolvent;
  • the Generator fails to make a payment under the CFD contract;
  • the Generator fails to comply with the requirement for the Generator to also be the owner of the generating asset;
  • the Generator breaches the transfer provisions in the CFD contract;
  • the Generator commits fraud in relation to the CFD contract;
  • the Generator fails to achieve the Required Installed Capacity
  • the Generator fails to give a Final Installed Capacity Notice by the specified deadline
  • the Generator breaches the credit support requirements; or
  • the Generator is involved in a Technical Compliance Termination Event or a Metering Access Termination Event. (For more information on metering see the section on Billing and Payments)

Qualifying Change in Law Termination and QCiL Compensation Termination

We encourage you to talk to your Contract Manager at the earliest possible opportunity if you have any reasons to think you may be affected by either of the above termination categories.

Our Approach

We have a right (but not an obligation) to terminate a CFD contract on the occurrence of certain events specified in the CFD contract.  As our termination right is often discretionary, in assessing whether or not to exercise this right, we will take in to account paragraph 3.3 of the Framework Document (set out below) which makes it clear that the intention of Government is that LCCC will enforce CFD contracts:

“The CFD and Investment Contract reflect Government’s policy intent and accordingly Government expects (subject to section 3.1 above) the Company to enforce contracts entered into it in accordance with their respective terms.”

We will also take our guiding principle into account which also is set out in the Framework Document and is as follows:

“In carrying out activities under and associated with the Company’s purpose as set out in section 2 (Low Carbon Contracts Company Purpose) and within the operational parameters set out in section 3 (Low Carbon Contracts Company Operational Parameters), the Company shall seek to maintain investor confidence in the CFD regime and minimise costs to consumers (the “Guiding Principle”).”

We strongly recommend that you contact your Contract Manager at the earliest opportunity if you think there is any risk that you will be in breach of the CFD contract. Additionally, if you can’t find what you are looking for here, or in our FAQ section then please call us on 0207 211 8881 or email us at contractmanagement@lowcarboncontracts.uk

*Annex 3 of the CFD contract

Disclaimer
The information provided here is designed to offer immediate support and guidance to Generators. It is not exhaustive and does not and is not intended to replace or supersede the Contract for Difference (“CFD contract”) (which is comprised of the CfD Agreement and the FiT Contract for Difference Standard Terms and Conditions (August 2014)).  Readers should not place reliance on this information and should refer to the CFD Contract.  This information does not constitute legal or investment advice and should not be relied upon as such.  Generators should consult their professional advisors where they require advice whether legal or otherwise on the application of the CFD Contract. This page is subject to change.
Defined terms which are used but not defined here have the meaning ascribed to them in the CFD contract.

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