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The Government’s Electricity Market Reform programme (EMR) is designed to attract the £110 billion investment needed this decade to replace the UK’s ageing energy infrastructure with a more diverse and low-carbon energy mix. EMR is the biggest change to the electricity market since privatisation.
EMR will facilitate this vital investment through the introduction of two new schemes: the “Contract for Difference” (or “CFD”); and the “Capacity Market”.
Low Carbon Contracts Company Ltd (LCCC) is a private limited company, wholly owned by the Secretary of state for Energy and Climate Change, and designated under The Contracts for Difference (Counterparty Designation) Order 2014 as the counterparty to Contracts for Difference (CFDs) and Investment Contracts. LCCC has an independent board of directors. LCCC commenced operations on 1 August 2014 and its primary functions are to be the counterparty to and manage CFDs and Investment Contracts, to administer and manage the operational and supplier obligation levy arrangements for CFD difference payments and to be responsible for CFD settlement activity.
As the designated counterparty to CFDs, LCCC is responsible for entering into and managing CFDs throughout their term. LCCC is also responsible for forecasting CFD payments to generators and setting the supplier obligation levy that funds them. LCCC is responsible for the settlement of amounts payable by and to generators and suppliers and outsources this work to EMR Settlement Ltd. LCCC also engages with delivery partners in particular in relation to forthcoming CFD allocation rounds. LCCC also manages the administration and operation process for the Electricity Settlements Company Ltd (ESC).
Please visit our CFD Register for full details of all the CFDs and Investment Contracts we manage. The CFD Register is regularly updated and contains high level information such as party names, technology type, strike price and capacity.
Electricity Settlements Company Ltd (ESC) is a private limited company, wholly owned by the Secretary of State for Business, Energy & Industrial Strategy and which has an independent board of directors. ESC’s role is to act as the settlement body for the Capacity Market to ensure payment of capacity payments payable to capacity providers who have agreed to provide capacity (or reduce demand) at times of system stress. ESC also collects capacity market supplier charges and settlement cost levy payments payable by electricity suppliers in order to fund capacity market payments and its operational costs. In addition, ESC collects and manages credit cover required from suppliers and potential capacity providers participating in the capacity auctions which are run by National Grid (as system operator). ESC has overall accountability for the managing the Capacity Market settlement process which includes determining Capacity Market settlement disputes. The administration and operation process for ESC are managed by Low Carbon Contracts Company Ltd.
Under the CFD, ‘difference’ payments are made by either LCCC to the generator or vice versa depending on whether the ‘reference price’, being the average market price for electricity at the relevant point in time, is greater than or less than the ‘strike price’. When the reference price is less than the strike price LCCC pays the generator the difference between the strike price and the reference price. Conversely, when the reference price is greater than the strike price the generator will pay the difference to LCCC.
This is the levy that electricity suppliers are required to pay under The Contracts for Difference (Electricity Supplier Obligations) Regulations 2014, as amended, to fund CFD payments.
LCCC’s guiding principle as a company is to maintain investor confidence in the CFD scheme and minimise costs to consumers. In managing CFDs, we proactively and efficiently manage generator contracts and supplier payment processes to minimise costs to consumers.
LCCC is led by its Chief Executive Neil McDermott and is governed by an independent board which is chaired by Dr Martin Read. LCCC is also governed by a Framework Document which sets out LCCC’s relationship with its sole shareholder, the Secretary of State for Business, Energy & Industrial Strategy, and LCCC’s company guiding principle.
The requirements for fulfilling the Milestone Requirement by way of Project spend are set out in Condition 4.1(A). This Condition requires the Generator to show evidence that it, and its direct shareholders, have in aggregate spent at least 10% or more of the Total Project Pre-Commissioning Costs on the Project. Therefore, in any given circumstance LCCC will need to be satisfied that at least the 10% minimum threshold amount has indeed been spent on the Project.
LCCC issued a contract amendment to Generators with a CFD for an onshore Generation Technology to confirm that grid connection costs (whether transmission network costs payable to National Grid or distribution network costs payable to a DNO) for onshore technologies may be eligible to count towards the 10% spent, provided that these grid connection costs have been spent and, as with all 10% spent monies, such costs have not been, and would not expected to be, refunded or repaid prior to the Facility being fully operational.
Where a letter of credit is given to National Grid as “security” for grid connection costs, the cost of obtaining the letter of credit (but not the value of the letter of credit) may be eligible to be part of the 10% spent.
LCCC annual reports have been published on LCCC’s website for the year ended 31 March 2016 and provide details of LCCC operations and accounts.
CFDs are awarded under the Contracts for Difference regime which is a mechanism introduced as part of the UK Government’s Electricity Market Reform programme to promote investment in secure and low carbon electricity generation while improving affordability for consumers. CFDs are private law contracts between a generator and LCCC which are in a standard template form published by the Department for Business, Energy & Industrial Strategy. The template CFD is divided into two parts, being the front end agreement (the “CFD Agreement”) into which the variables are inserted (e.g. generators name, project description, strike price) and the template standard terms and conditions. The essence of a CFD is that the generator will be paid the difference between the ‘strike price’ and the ‘reference price’. The strike price is a price for electricity reflecting the cost of investing in a particular low carbon technology. The reference price is the average market price for electricity at the relevant point in time. If the generator sells its electricity at less than the strike price, LCCC will pay it the difference. If the generator sells its electricity for more than the strike price, the generator will pay LCCC the difference.
Under The Contracts for Difference (Standard Terms) Regulations 2014, as amended, LCCC is required to publish the CFD Register on its website. The CFD Register includes information relating to CFDs and Investment Contracts. The Secretary of State for Business, Energy & Industrial Strategy was originally the counterparty to the Investment Contracts but now all but one have transferred to LCCC pursuant to The Energy Act 2013 Investment Contract (Offshore Wind) Transfer Scheme 2014.
A total of 25 projects signed 27 CFDs under the first Allocation Round. 1 of the 25 projects is a phased CFD comprising of 3 phases, each of which has its own CFD.
Under The Contracts for Difference (Standard Terms) Regulations 2014, as amended, LCCC is required to publish the following information:
the unique identifier of a CFD;
the information set out in a CFD notification (which will include Target Commissioning Window, Target Commissioning Date, capacity, technology type, geographical co-ordinates);
any modification of standard terms;
the CFD counterparty’s reason for accepting an application to modify standard terms;
any change to the strike price of a CFD;
any reduction to the capacity of a generating facility under a CFD;
where a CFD is terminated, the date on which termination occurs; and
the date that a generator proposes to be the start date for the purposes of its CFD.
LCCC may exclude from publication any information which in its opinion it would be entitled not to disclose in response to a request for its disclosure under the Freedom of Information Act 2000(a) or the Environmental Information Regulations 2004(b). LCCC is required to give generators an opportunity to make representations before deciding what information should be excluded from publication in the CFD Register.
LCCC will keep the CFD Register up to date and publicly accessible on its website. Information relating to new CFDs entered into under future allocation rounds will be added to the CFD Register.
The CFD Register will only contain details of CFDs that have been accepted by generators. Generators that have been offered a CFD but have failed to sign it will be subject to the Non-Delivery Disincentive (NDD). The NDD is designed to deter speculative applications for example by incentivising applicants who have been offered CFDs to sign them. The NDD policy is reflected in The Contracts for Difference (Allocation) (Amendment) Regulations 2015. LCCC is required to make a register publicly available of sites that have been excluded under the NDD. These excluded sites will be published on LCCC’s website as soon as is practicable following the date of exclusion of the site.
The cost of CFDs will be met by electricity consumers via the supplier obligation which is a levy imposed on electricity suppliers in accordance with The Contracts for Difference (Electricity Supplier Obligations) Regulations 2014, as amended.
The CFD Register provides information about the projects which will give Suppliers the information they will need to undertake their own assessment of how the levy rate may evolve over time. Please note that the CFD Register only includes CFDs (and Investment Contracts) to which LCCC is a party. It does not include Investment Contracts to which the Secretary of State for Business, Energy & Industrial Strategy is a party even though they may be managed by LCCC on behalf of the Secretary of State.
LCCC also publishes the forecast for Interim Levy Rate, Total Reserve Amount and CFD Difference payment on its transparency tool.
The ‘strike price’ is a price for electricity reflecting the cost of investing in a particular low carbon technology and is set out in the CFD Agreement. The strike price is adjusted in accordance with the provisions of the CFD. The circumstances where the strike price will be adjusted, the formula to be used in calculating the adjustments and the timings for such adjustments are set out in the CFD. When a strike price is adjusted, the CFD Register will be updated accordingly in accordance with Regulation 12 of The Contracts for Difference (Standard Terms) Regulations 2014, as amended.
Regulation 47 of The Electricity Capacity Regulations 2014, as amended, , requires Electricity Settlements Company Ltd (ESC) as the settlement body, to maintain a register ("the non-payment register") which is to include certain information including the names of electricity suppliers and capacity providers who have not paid an invoice issued to them under The Electricity Capacity Regulations 2014 or The Electricity Capacity (Supplier Payment etc.) Regulations 2014, each as amended, by the payment due date.
Electricity suppliers and capacity providers who have been issued an invoice for payment pursuant to The Electricity Capacity Regulations 2014 or The Electricity Capacity (Supplier Payment etc.) Regulations 2014, each as amended, which has not been paid by the relevant payment due date.
The non-payment register will be published on ESC’s website and will include the following details:
- name of the payer (i.e. electricity supplier or capacity provider)
- payer’s EMR ID • payment due date • category of payer (i.e. supplier or capacity provider)
- type of invoice in respect of which the payer is in default
- current status of payment (paid, partially paid, unpaid) and the date(s) on which any payment has been made
- whether any dispute has been raised by the payer in respect of the invoice
If the payer has raised a dispute, whether the dispute has been determined and, if so, the determination ESC uses data given to it by its settlement agent, EMR Settlement Limited (EMRS), to populate the non-payment register. Please see the EMRS website for more information.
In accordance with Regulation 45 and 47 of The Electricity Capacity Regulations 2014 (as amended), any late payment of any invoices issued under The Electricity Capacity Regulations 2014 or the Electricity Capacity (Supplier Payment etc.) Regulations 2014 will be covered. Herein a ‘payer’ refers to a party who has not paid an invoice issued under The Electricity Capacity Regulations 2014 or the Electricity Capacity (Supplier Payment etc.) Regulations 2014.
Please note that only the settlement cost levy will apply until late 2016 at the earliest.
Once a payer is entered onto the register the entry will remain on the register for 12 months from the due date for payment or, in the case of a disputed payment determined in the payer’s favour under Chapter 2 of Part 10 of the Electricity Capacity Regulations 2014, the date of such decision. Once a party has made a late payment, even if the full payment has been made, that entry will be recorded as paid but it will remain on the register for 12 months.
ESC will apply a materiality limit in relation to publication of a non-payment on the non-payment register. Payments which are due but are below this materiality limit will not be published on the non-payment register. The materiality limit is being applied for operational reasons and will not affect or limit in any way a payer’ obligations to pay all amounts due by the relevant due dates for payment (plus interest on any outstanding amount). The materiality limit will in no way affect ESC’s rights to recover all payments in full which are due. The materiality limit has been set at an aggregated value of £100.
Where a supplier or capacity provider has not paid the invoiced amount to ESC in full the supplier or capacity provider must pay to ESC simple interest on the outstanding balance of the invoiced amount from the due date for payment until the date of payment. This is in accordance with Regulation 11(3) of The Electricity Capacity (Supplier Payment etc.) Regulations 2014 and Regulation 46(2) of the Electricity Capacity Regulations 2014. Late payment interest applies on the full unpaid amount regardless of any materiality limit being applied for operational reasons in relation to publication in the non-payment register.
This rate is calculated in accordance with Regulation 11(5) and 11(6) in The Electricity Capacity (Supplier Payment etc.) Regulations 2014. The rate at which late payment interest is payable is 5 per cent per annum over the Bank of England base rate in force on the 30th June or the 31st December immediately before the date on which the interest starts to run.
If a payer thinks they have been invoiced incorrectly in the first instance they should contact EMRS, the settlement agent, at Contact@emrsettlement.co.uk.
EMRS will check the invoice in question and in the event of any errors a new invoice will be issued.
If, after raising a query with EMRS the payer is still not satisfied they may raise a dispute notice with ESC by emailing email@example.com.
Upon receipt of a dispute notice ESC will review the dispute and decide whether to appoint an independent person to assist with its determination of the dispute. Once ESC has reviewed all the information (including any report or audit provided by the independent person, if applicable) it will make a determination and notify the disputing party of its decision and the reason for the decision.
Please see Chapter 2 of Part 10 of the The Electricity Capacity Regulations 2014 for more information.
While a dispute determination is ongoing, the relevant entry will marked as under dispute. If the outcome of the determination is that the payment was not due, the entry will be removed from the non-payment register. If the outcome of the determination is that the relevant payment should have been made then the entry will no longer be marked as under dispute and will remain on the register for 12 months from the entry date as per any other entry.
The ESC (through its settlement agent, EMRS) will endeavour to contact the payer and remind them of their obligation to pay.
As the register is published the energy regulator Ofgem will be made aware of any non-payments.
If a payer is repeatedly entered onto the non-payment register then the ESC will warn the payer of its intention to formally notify Ofgem. If after a reasonable period the payer still does not make the payment reserves the right to formally refer the payer to Ofgem, who will undertake appropriate action as they see fit.
Payments to capacity providers will derive from the capacity market supplier charge which is likely to come into force October 2016. If a supplier is late in paying this charge, the credit cover which suppliers are obliged to provide as security will be drawn upon.
In accordance with Regulation 25(3) of The Contracts for Difference (Electricity Supplier Obligations) Regulations 2014 (as amended by Regulation 30 of the Electricity Supplier Obligation (Amendment and Excluded Electricity) Regulations 2015), where LCCC determines that an electricity supplier has not complied with the requirement to provide collateral under Regulation 19(2), it may issue a notice to that supplier setting out the amount of collateral which the supplier would have to provide to meet that supplier’s collateral requirement for the day on which the notice is issued. This notice is a collateral default notice. Where LCCC has issued a collateral default notice to a supplier, the supplier is required to pay the amount specified in the notice to LCCC in cash by the end of the next working day after the notice has been issued.
In accordance with Regulation 19 of The Contracts for Difference (Electricity Supplier Obligations) Regulations 2014 (as amended by Regulation 27 of the Electricity Supplier Obligation (Amendment and Excluded Electricity) Regulations 2015, electricity suppliers who make an electricity supply in a quarterly obligation period in respect of which it is required to make an interim rate payment, must ensure that, on any day, LCCC holds sufficient collateral from the supplier to meet the supplier’s collateral requirement for that day.
The amount of collateral required is determined on a daily basis and is equal to a Supplier’s metered volumes for a 21 day reference period multiplied by the current Interim Levy Rate (the rate applicable at point 1, below). The reference period is determined by the availability of Balancing and Settlement Code Company (BSCCo) metered data, and therefore is based on the 21 calendar days available to EMRS prior to the calculation taking place. EMR Settlement Services Provider will calculate the minimum amount of collateral that a supplier needs.
For any given reference period this will include metered data from both Interim Information (II) and Settlement Final (SF) settlement runs. An example of the data used in a typical reference period is shown in Figure 1 below.
A copy of the collateral default notice will be published on the LCCC’s website in the form of a PDF document. A copy of the default notice will also be sent to Ofgem. LCCC has taken the view that for operational transparency all collateral default notices will be published.
In accordance with Regulation 25(7) of The Contracts for Difference (Electricity Supplier Obligations) Regulations 2014, where LCCC issues a default notice under Regulation 25(2) or a collateral default notice under Regulation 25(3) to a supplier it must also provide a copy of that notice to Ofgem
When it has been determined that a Supplier has not met its collateral requirement, they will enter a two day cure period, to allow the Supplier to correct their position prior to escalation. If the Supplier
has met their collateral requirement on the second day of the cure period (the ‘cure day’) by the end of the cure day, no further action is taken. This will be met if a Supplier has either:
1. A positive position on the cure day’s collateral Report; or
2. Lodged enough collateral by the end of the cure day to meet the requirement detailed on the
cure day’s collateral Report
However, if the Supplier has not met either of the above criteria by the end of the cure day and shortfall is greater than £500 at the time of issuing the collateral default notice then a collateral default notice is issued.
A notice will remain on the LCCC website for twelve (12) months from the date of issue unless there is a dispute over the collateral requirement that is the subject of the notice which has been determined in favour of the supplier, in which case, the collateral default notice will be removed from the LCCC website as soon as practicable after the determination.
Upon receipt of a disputes notice LCCC will review the disputes notice. Once LCCC has reviewed all the information it will make a determination and notify the disputing supplier of its decision notice by the 28th day after the date on which LCCC has received the dispute notice.
Please see Regulation 26 and 27 of The Contracts for Difference (Electricity Supplier Obligations) Regulations 2014 (as amended by Regulation 31 and 32 of the Electricity Supplier Obligation (Amendment and Excluded Electricity) Regulations 2015) for more information on disputes process.
While a dispute determination is ongoing, the relevant default notice or collateral default notice will be marked as being ‘under dispute’. If the outcome of the determination is that the payment or collateral was not due, the default notice or collateral default notice will be removed from the LCCC website. If the outcome of the determination is that the relevant payment should have been made by the supplier, then the default notice or collateral default notice will no longer be marked as ‘under dispute’ and will remain on the LCCC website for twelve (12) months from the original issue date.
LCCC (through its settlement agent, EMRS) will endeavour to contact the supplier and remind them of their obligation to lodge collateral to the required level.
In the event of continued failure to meet collateral obligations LCCC will escalate the matter with Ofgem, who will undertake appropriate action as they see fit.
Low Carbon Contracts Company is working with DECC and National Grid in preparation for the next allocation round. We expect a further announcement from the Government in relation to the next round later this year.
In March 2016 Government announced information in relation to the next allocation round for Contracts for Difference (CFDs) including:
Up to £730million (per year for each year of 15 year contracts) this Parliament for offshore wind and other less established technologies
£290 million of annual support for the first auction allocated for the next CFD auction
Support for offshore wind will be capped initially at £105/MWh (2011-12 prices) falling to £85/MWh for projects commissioning by 2026.
CFDs are private law contracts between LCCC and CFD generators. Whilst LCCC does not comment on individual projects, LCCC has, from the outset of their entry into the CFD, reminded all generators of the fundamental importance of compliance with the Milestone Requirement (see Condition 4 of the CFD)  by the relevant deadline (i.e. the Milestone Delivery Date).
To summarise, the objective of the Milestone Requirement, as set out by DECC in the various documents relating to the CFD, which were published by DECC over the period prior to the issue of the CFD standard terms and conditions in August 2014 ,,  and  is to ensure that the CFD generator has demonstrated significant financial commitment to the project. That the project is progressing in good faith towards its completion, and to deter speculative or under-developed projects from applying for or continuing to hold CFD contracts, thereby tying up CFD Budget which could otherwise have been deployed to support other projects.
Where a CFD Generator fails to demonstrate that it has met the Milestone Requirement as set out in the CFD, the LCCC has the right to terminate the CFD.
1. CFD Standard Terms and Conditions, https://www.gov.uk/government/uploads/system/uploads/attachment_data/fil...
2. DECC Publication - Implementing Electricity Market Reform (EMR) Finalised policy positions for implementation of EMR June 2014
3. Electricity Market Reform: Contract for Difference - Allocation Methodology for Renewable Generation, https://www.gov.uk/government/uploads/system/uploads/attachment_data/fil...
4. Electricity Market Reform: Update on Terms for the Contract for Difference, December 2013, available at https://www.gov.uk/government/uploads/system/uploads/attachment_data/fil...
5. Implementing Contracts for Difference: Policy and Drafting Update, 23 April 2014, available at, https://www.gov.uk/government/uploads/system/uploads/attachment_data/fil...
In accordance with Regulation 25(2) of The Contracts for Difference (Electricity Supplier Obligations) Regulations 2014, where LCCC determines that an electricity supplier has not complied with any requirement to pay an amount required under the Regulations, it may issue a notice to that supplier setting out the amount which LCCC determines that supplier should have paid, the basis on which LCCC determined that amount, the date on which the amount should have been paid, the rate, if any, of interest which applies and any amount of interest which has accrued as of the date of the notice.
In accordance with Regulation 25(7) of The Contracts for Difference (Electricity Supplier Obligations) Regulations 2014, a copy of the default notice issued under Regulation 25(2) or collateral default notice issued under Regulation 25(3) will be published on the LCCC’s website in the form of a PDF document and a copy of same will be sent to Ofgem. Whilst the Regulations state that LCCC may publish default notices and collateral default notices, LCCC has taken the view that for operational transparency all default notices and collateral default notices will be published on LCCC’s website for a minimum of 12 months.
LCCC (through its settlement agent, EMRS) will contact the supplier and remind them of their obligation to make a payment or lodge collateral to the required level.
In the event of continued failure to meet payment or collateral obligations, LCCC will consider its options for recovering payment in accordance with its duty under Regulation 28 of The Contracts for Difference (Electricity Supplier Obligations) Regulations 2014, as amended, to exercise its functions in the manner best calculated to ensure the collection of all amounts which are required to be paid or provided by suppliers.
ESC’s annual reports have been published on LCCC’s website for the year ended 31 March 2016 and provide details of ESC operations and accounts.
Once a relevant register entry has been made onto the non-payment register it will remain on the non-payment register for 12 months from the due date of the payment or, in the case of a disputed payment determined in the payer’s favour under Chapter 2 of Part 10 of the Electricity Capacity Regulations 2014, as soon as reasonably practicable from the date of such determination. Once a party has made a late payment, even if the full payment has been made, that entry will be recorded on the non-payment register as having been paid (in part of in full) but the entry will remain on the register for 12 months from the due date of the payment.
The contractual requirements for fulfilling the Milestone Requirement by way of a 10% Project spend are set out in Condition 4.1 of the CFD Standard Terms and Conditions. This Condition requires the Generator to evidence that it and its direct shareholders have in aggregate actually spent at least 10% of the Total Project Pre-Commissioning Costs on the Project. Therefore, in any given circumstance LCCC will need to be satisfied that at least the minimum threshold amount has been spent on the Project. Please refer to the Milestone Requirement Guidance for further information.
The CFD does not preclude a Project from being delivered, or from generating electricity, earlier than the Target Commissioning Window. A Generator will not, however, receive Difference Amounts under the CFD in respect of electricity which is generated before the "Start Date", as defined in Condition 3.21. For the purposes of the CFD, the "Start Date" is, amongst other things, "no earlier than the first day of the Target Commissioning Window" (Condition 3.21(iii)). A Project therefore will not receive Difference Amounts under the CFD in respect of electricity generation earlier than the first day of the Target Commissioning Window.
Interested parties are advised to review the provisions of the CFD in their entirety to assess the contractual risks and mitigants that may be associated with or affected by the withdrawal of a project’s planning consent.
The list below is not an exhaustive list (and should not be read as such), but gives a guide to the circumstances which may be relevant;
• the representations and warranties provided by the Generator in respect of Required Authorisations pursuant to Condition 28;
• the undertakings provided by the Generator in respect of Required Authorisations, and the notifications obligations in respect of such undertakings, pursuant to Condition 30;
• the Milestone Requirement as set out in Condition 4 and the termination provision set out in Condition 51 in relation to failure to meet the Milestone Requirement; and.
• the requirement that not less than 80% of the Installed Capacity Estimate has been Commissioned as part of the Operational Conditions Precedent which must be fulfilled in order to trigger the Start Date (see Condition 3) and the requirements in respect of the Installed Capacity which must be Commissioned at the time at which the Final Installed Capacity Notice is provided to LCCC (see Condition 7 and Condition 53.1(D)).
We would also note that certain force majeure protections in respect of contractual breach are incorporated into the Conditions (see in particular the defined term "Force Majeure" and Condition 69); along with ability for the Generator to reduce the Installed Capacity Estimate in particular specified circumstances. The scope of these protections is set out within the Conditions.
Interested parties are advised to review the provisions of the CFD in their entirety to assess the contractual risks and mitigants that may be associated with a failure to meet any particular Eligibility Requirement post CFD signature.
The list below is not an exhaustive list (and should not be read as such), but gives a guide to the circumstances which may be relevant:
• the representations, warranties and undertakings the Generator is required to provide under Conditions 28 and 30 of the CFD, and the notification obligations in respect of such undertakings pursuant to Condition 30;
• the Milestone Requirement as set out in Condition 4;
• the notification requirement set out in Condition 3.12 in respect of any fact, matter or circumstances which will, or is reasonably likely, to prevent any of the Operational Conditions Precedent from being fulfilled by the Longstop Date;
• the requirement that not less than 80% of the Installed Capacity Estimate has been Commissioned as part of the Operational Conditions Precedent which must be fulfilled in order to trigger the Start Date (see Condition 3) and the requirements in respect of the Installed Capacity which must be Commissioned at the time at which the Final Installed Capacity Notice is provided to LCCC (see Condition 7 and Condition 53.1(D)); and
• The force majeure protection included within the CFD (see in particular the defined term "Force Majeure" and Condition 69).
“Generation Tax" is defined in Condition 1 of the Conditions as a tax or a levy, duty or impost in the nature of tax that is imposed by Her Majesty’s Government (or which Her Majesty’s Government has formally required a UK Competent Authority to charge) specifically and directly on electricity generators.
The key contractual provisions setting out the CFD position in respect of Generation Tax Change in Law are set out in Part 9 of the Conditions. These provisions include Conditions setting out the situations in which compensation would be payable and the way in which this compensation would be calculated. Interested parties should review these provisions
One of the Operational Conditions Precedent requires the FMS Procedures must be documented and agreed by the Parties to the CFD. The Start Date of the CFD cannot be earlier than the date on which the Operational Conditions Precedent are met to the satisfaction of LCCC. If the Start Date falls after the last day of the Target Commissioning Window but before the Longstop Date, the Term of the CFD will effectively be eroded as it commences on the earlier of the Start Date and the last day of the Target Commissioning Window.
Paragraph 1.1 (FMS Proposals Response Notice) of Part A (FMS arrangements) of Annex 7 to the Conditions, states that as soon as reasonably practicable following the Agreement Date, the Generator shall give an FMS Proposals Notice to LCCC. Paragraph 1.4 provides that LCCC shall, no later than twenty (20) Business Days after receipt of the FMS Proposals Notice, give a notice to the Generator (an “FMS Proposals Response Notice”) specifying whether LCCC:
consents to the Generator FMS Proposals;
does not consent to the Generator FMS Proposals, in which case LCCC shall summarise its reasons for not consenting to the Generator FMS Proposals; or
considers that it has not been provided with sufficient Supporting Information to determine whether to consent to the Generator FMS Proposals (and, in such circumstances, LCCC may request further Supporting Information from the Generator in connection with: (a) the Generator, the Facility and the Generator FMS Proposals; and (b) any potential amendments, modifications, supplements or replacements LCCC may require to be made to the FMS Procedures contained within the Generator FMS Proposals) (the “FMS Proposals Supporting Information”).
Where LCCC consents to the Generator FMS Proposals, such proposals will then be adopted as the FMS Procedures in respect of the relevant Project. Alternatively, where LCCC does not consent or requires FMS Proposals Supporting Information, the Parties are required under paragraph 1.6 to meet and in good faith seek to agree upon the FMS Procedures which LCCC is willing to consent to and to be adopted for the purposes of the CFD.
Generators are encouraged to contact LCCC when the Initial Conditions Precedent have been fulfilled to discuss the process for agreeing the FMS Proposals. . We recognise that some details of the FMS Proposals will be subject to the design of the Facility being sufficiently advanced. Nevertheless, an early discussion is recommended so that the Generator fully understands the requirements relating to the FMS arrangements.
Generators should note that documentation and agreement of the FMS Procedures by the Parties to the CFD are one of the Operational Conditions Precedent that must be fulfilled prior to payment under the CFD.
LCCC has engaged Ofgem to provide FMS services.
"TLM(D)" is defined in Condition 1 as:
the transmission losses adjustment allocated in accordance with the BSC to BM Units belonging to delivering Trading Units and defined as at the Agreement Date in section T of the BSC as TLMO+j; or
any new or substitute multiplier or factor which is in the nature of, or similar to, that adjustment.
For Projects to which Part 10 (Balancing System (BSUoS/RCRC) and TLM(D)) of the Conditions applies, Condition 47 sets out the mechanism through which the Strike Price is adjusted in relation to changes to the TLM(D). Interested parties should review these provisions.
A Relevant Construction Event (RCE) is defined in Condition 1 and means a Construction Event:
(A) of which no Generator acting in accordance with a Reasonable and Prudent Standard and having made all due and careful enquiries would have been aware, and of which the Generator was not aware, at the FiT CFD Application Date; and
(B) which renders the development, completion, construction, conversion, installation or commissioning of the Facility to meet the Installed Capacity Estimate uneconomic.
Under Condition 5.1, a Generator may, if it considers that a Relevant Construction Event has occurred, give a notice to LCCC (an “RCE Notice”). An RCE Notice must be given to LCCC no later than three (3) months prior to the Longstop Date (the “”). In accordance with Condition 5.1(C), the RCE Notice shall include such Supporting Information as the Generator considers to be relevant to evidence, among other things, the basis for the Generator having concluded that the Construction Event constitutes a Relevant Construction Event (RCE).
The burden of proof is therefore in the first instance on the Generator to satisfy LCCC that the RCE event has occurred and fulfils the “uneconomic” test in the relevant circumstances. Whether or not a Construction Event has rendered the development, completion, construction, conversion, installation or Commissioning of the Facility to meet the Installed Capacity Estimate uneconomic will need to be assessed by LCCC on a case by case basis.
Among other things, in order for a Change in Law to fall within the definition of "Qualifying Change in Law" as defined in the Conditions, it must not be a "Foreseeable Change in Law". The term "Foreseeable Change in Law" is defined within Condition 1.
"Force Majeure" is defined in Condition 1, with Condition 69 setting out the relief from breach and liability which is provided to the party affected by Force Majeure where Force Majeure applies.
In accordance with Condition 79.1 of the CFD Standard Terms and Conditions (Restriction of Transfers), neither Party may, without the prior written consent of the other Party:-
- assign to any person all or any of its rights or benefits under the CFD or any other CFD Document;
- make a declaration of trust in respect of or enter into any arrangement whereby it agrees to hold in trust for any person all or any of its rights or benefits under the CFD or any other CFD Document; or
- transfer (whether by way of novation, sub-contract, delegation or otherwise) to any person, or enter into an arrangement whereby any person is to perform, any or all of its obligations under the CFD or any other CFD Document.
If, under Condition 79.1, a Generator requests LCCC’s prior written consent, LCCC will consider the specific circumstances of this request before providing consent. Any granted request will be provided in written form in a reasonable time period.
As confirmed by DECC in its CFD Q&A document dated 11 September 2014, a Generator whose Project's planning permission is subject to a judicial review is not precluded from applying for a CFD. It is for CFD applicants to decide whether to apply for a CFD and whether they will be able to deliver the progress on the Project in accordance with the dates applying to the Milestone Requirement, Target Commissioning Window and Longstop Date. Potential applicants and CFD Generators should also note the "non-delivery disincentive mechanism" applying in circumstances where a Generator fails to sign a CFD which is offered to it (or where the CFD, having been entered into, is terminated within 13 months of the date of the CFD notification). Where the non-delivery incentive applies, a 13 month exclusion will be in place. The non-delivery disincentive mechanism is set out in the Contracts for Difference (Allocation) (Amendment) Regulations 2015. These Regulations also set out certain limited grounds upon which an application may be made to the Secretary of State for an exemption from the exclusion.
It is recommended that interested parties familiarise themselves with Annex 6 (CHPQM Calculation Methodology) to the Conditions and any other relevant provisions, including those in CHPQA Guidance Note 44.
Annex 6 applies to the CFD only if the CHP Qualifying Multiplier (CHPQM) is expressed to apply to the CFD (see the CFD Agreement). Paragraph 2.1 of Annex 6 states that, in respect of any Settlement Unit, the CHPQM means:
- the decimal fraction identified as such multiplier in a valid CHPQA Guidance Note 44 Certificate; or
- if the Facility does not have a valid CHPQA Guidance Note 44 Certificate, zero (0).
Therefore, the Generator is contractually entitled under the CFD to a CHPQM calculated on the basis of the multiplier stated in its valid CHPQA Guidance Note 44 Certificate.
Please see DECC's response in respect of its "Electricity Market Reform: Consultation on proposals for implementation" dated June 2014, for details of the "investor safeguard" to be provided by DECC in respect of CFD supported biomass (but not Energy from Waste) CHP Schemes, through an updated CHPQA Guidance Note 44.
The Term of the CfD is 15 years. The Term commences from the Start Date of generation if the Start Date occurs during the Target Commissioning Window. However, if the Start Date falls outside the Target Commissioning Window, but before the Longstop Date, the term will commence on the last day of the Target Commissioning Window and this will result in the contract term of 15 years being eroded for a duration equal to the period between the last day of the Target Commissioning Window and the Start Date. The Start Date must be before the Longstop Date.
The Term cannot be extended beyond 15 years. The 15 year term will be eroded if the Generator is unable to specify a valid Start Date for generation within the Target Commissioning Window. However, the Target Commissioning Window may be extended for delay to the Project by reason of:
Force Majeure, or
Failure by the transmission or distribution network operators to carry out any required works in a timely manner.
The strike price is index linked to CPI. It is indexed on an annual basis, the process for which is set out in Condition 14 (for Baseload Technologies) and Condition 20 (for Intermittent Technologies) of the CfD Standard Terms and Conditions. The strike price can also be adjusted on an annual basis for changes in Balancing Services Use of System (BSUoS) and Transmission Loss Multiplier (TLM) charges in accordance with Part 10 of the CfD Standard Terms and Conditions, as applicable.
A: At the end of an Allocation Round, the EMR delivery body (National Grid) notifies LCCC of the names of the successful applicants and LCCC is required to offer a contract based on standard terms and incorporating the project specific data submitted by the Generator at application stage. The contract will be issued to the Generator within 10 Working Days of the date that National Grid notifies LCCC of the details of the Generators to be offered CfD contracts. The Generator must sign and return the contract to LCCC within 10 Working Days of receipt, otherwise the offer lapses. By signing the CfD, the Generator confirms certain matters are true, accurate and not misleading as at the date of the CfD including amongst other things:
that it is it is duly formed and validly exists as a legal entity in accordance with the laws of the jurisdiction in which it is incorporated;
that it has the power to enter into the CfD and perform its obligations under it;
that the obligations which the CfD places on it are legal, valid and enforceable;
that all of the Required Authorisations have been obtained and are in full force and effect;
that no litigation has been instigated against the Generator or, as far as the Generator is aware, threatened against the Generator;
that the electricity generated by the Facility will throughout the Term of the CfD contribute to a reduction in emissions of Greenhouse Gases; and
that entry into, delivery and performance of the CfD by the Generator does not conflict with:
its constitutional documents;
any Law or Directive which applies to the Generator;
any Required Authorisations; or
any agreement or instrument, such as a contract with another party, which is binding upon the Generator or any of its assets.
The first key milestone under the CfD are the Initial Conditions Precedent (“ICPs”). To satisfy the ICPs, the Generator is required to:
provide a legal opinion confirming that (a) the Generator is duly formed and validly existing under the laws of the jurisdiction of formation, and (b) it has the power to enter into and perform its obligations under the CfD;
provide evidence of compliance with the LCCC ‘know your customer’ checks which includes providing evidence to satisfy LCCC of the legal identity, ownership and control of the Generator; and
submit a description of the Project Facility in a form and content that is satisfactory to LCCC, which must include details of the assets comprising the Facility and an aerial view of the geographical location of the Facility.
The Initial Conditions Precedent must be fulfilled within 10 Working Days of the Agreement Date (i.e. the date of the CfD).
Within 12 months of the date of the CfD, the Generator must demonstrate its commitment to delivering the Project by fulfilling the Milestone Requirement, which can be done in one of two ways:
- by incurring actual spend equal to at least 10% of the Total Project Pre-Commissioning Costs which are the expected project development and construction costs for the relevant technology as set out in the CfD Agreement (the ‘10% route’); or
- by evidencing that it has made various commitments to the Project which are set out in the CfD and which include for example that the Generator has sufficient means to finance the project. There is also a technology specific project commitment which is different for each technology but can include a requirement that contracts are in place to buy all the material equipment or that an engineering procurement and construction contract is in place (the ‘project commitments route’).
The Milestone Requirement is designed to ensure that the Generator is advancing the Project in a timely matter. This gives confidence that (i) the Generator is committed to the Project, (ii) the budget for CfDs, which comprises funds ultimately paid for by consumers, is not being allocated to speculative or under-developed projects thereby tying up funds that could be deployed to other more viable or committed projects, and (iii) the UK is making sufficient progress towards legally binding decarbonisation and renewable targets. If the Generator fails to fulfil the Milestone Requirement by the Milestone Delivery Date, LCCC is entitled to terminate the CfD.
The Milestone Delivery Date is also the deadline by which the Generator may reduce its Installed Capacity Estimate to no less than 75% of the Initial Installed Capacity Estimate set out in its CfD.
The Target Commissioning Window is the period during which the Generator is expected to commission the Project. If the Generator fulfils the Operational Conditions Precedent (which include commissioning at least 80% of its Installed Capacity Estimate) and provides a valid Start Date Notice to LCCC during the Target Commissioning Window, the Start Date will trigger the start of the 15 year CfD term. However, if the Generator provides the Start Date Notice after the Target Commissioning Window has ended (but prior to the Longstop Date), the CfD term will be eroded as the 15 year term will have commenced on the last day of the Target Commissioning Window. The Target Commissioning Window applicable to each technology is set out in the Standard Terms Notice.
The Generator is required to fulfil the Further Conditions Precedent, which are set out in the CfD and include the Operational Conditions Precedent and the State Aid Condition Precedent, prior to any CfD payments being made. One of the Operational Conditions Precedent requires the Generator to demonstrates that it has Commissioned not less than 80% of the Installed Capacity Estimate.
The Longstop Date is the date by which the Generator must have Commissioned its Required Installed Capacity. This is either 85% or 95% of its Installed Capacity Estimate, depending on the Project Generation Technology. Alternatively, if the Project Generation Technology is onshore or offshore wind, the Required Installed Capacity may be the Installed Capacity Estimate less the size (expressed in MW) of one of the Facility’s turbines.
A: “Commissioned” and “Commissioning Test” are defined terms in the CfD Standard Terms and Conditions. To commission the plant, the Generator needs to evidence to the satisfaction of LCCC that all of the Commissioning Tests have been successfully completed by the Generator.
Commissioning Tests is a defined term in the CfD and the Generator should ensure that it commissions the Project in accordance with the definition. LCCC will publish a detailed guidance on the commissioning requirements which should be referred to and which will be updated from time to time. It is expected that the guidance document will set out the following minimum requirements (this is not an exhaustive list):
a desktop review of type test and other associated data;
commissioning records and tests of individual items of the plant comprising the Facility; and
overall system tests and performance tests.
Some Commissioning Tests may be witnessed by LCCC.
The CfD provides change in law protection. Part 8 of the CfD Standard Terms and Conditions sets out what constitutes a qualifying change in law and the methodology for calculating the potential compensation amount should a Generator qualify for change in law compensation.
A: Provisions in respect of Force Majeure can be found at Condition 69 of the CfD Standard Terms and Conditions. The Milestone Delivery Date, Target Commissioning Window and the Longstop Date can be extended if there is a valid Force Majeure, subject to the Conditions of the CfD.
A Generator cannot increase its Initial Installed Capacity Estimate. Prior to the Milestone Delivery Date the Generator can reduce the capacity by up to 25% of the Initial Installed Capacity Estimate. The Generator may also, no later than three months prior to the Longstop Date, reduce the capacity if a Relevant Construction Event has occurred. The Generator is required to commission 80% of the Installed Capacity Estimate before the Start Date for generation. The Generator is required to commission the Required Installed Capacity which is 95% (for all technologies excluding offshore wind) or 85% (for offshore wind) of the Installed Capacity Estimate by the Longstop Date. If the generation technology is onshore or offshore wind, the Required Installed Capacity can alternatively be equal to the Installed Capacity Estimate less the size of one of the Facility’s turbines.
If the grid connection is delayed by the relevant transmission or distribution network operator, the Generator may be eligible for an extension to the Milestone Delivery Date, Target Commissioning Window and/or Longstop Date. Provisions for such extension are dealt with in the definitions of Milestone Delivery Date, Target Commissioning Window and Longstop Date in the CfD. The delay in the grid connection must cause a clear delay to the Project’s development programme and must not be due to the fault or negligence of the Generator.
There are a number of situations in which LCCC has a right to terminate the CfD. The CfD may be terminated by LCCC for any one of the following reasons:
failure by the Generator to fulfil the Initial Conditions Precedent within 10 Working Days of the Agreement Date;
failure by the Generator to deliver the Milestone Requirement Notice by the Milestone Delivery Date or to fulfil the Milestone Requirement by the Milestone Delivery Date;
failure by the Generator to complete the Operational Conditions Precedent by the Longstop Date;
if, at any time prior to the Start Date, a Directors’ Certificate provided with the Milestone Requirement Notice is not true, complete or accurate in any material respect or is misleading;
if at any time prior to the Start Date, one of the following events occurs and is continuing:
- insolvency of the Generator;
- non-payment of any payment due by the Generator to LCCC;
- breach by the Generator of the ownership undertaking at Condition 30.1(E) or Condition 79 (Transfers);
- fraud by a director, officer or other senior manager of the Generator;
- failure by the Generator to deliver the Required Installed Capacity or to given a Final Installed Capacity Notice within 10 Business Days of the Longstop Date;
- failure by the Generator to provide acceptable collateral where required; or
- failure by the Generator to comply with metering arrangements.
If a termination event occurs after the Start Date, (except where the termination has resulted from the occurrence of a Termination Event failing within Condition 53.1(D) (Final Installed Capacity)), the Generator may be required to pay to LCCC a Termination Amount. A Termination Amount is equal to the amount the Generator would have paid in difference payments over the remaining life of the contract had the CFD not been terminated. The calculation of the amount is set out in Annex 1 of the CfD Standard Terms and Conditions.
The Generator must ensure that its metering equipment meets all applicable rules and standards as defined in the Balancing and Settlement Code. The Generator must ensure that the metering equipment records the BM Unit Metered Volume accurately. The BM United Metered Volume means that all the output electricity generated and all the input electricity used by the Facility is accurately recorded. Offshore wind generators may apply for a CfD with either single metering or apportioned metering arrangements.
FMS and Sustainability arrangements must be agreed with LCCC before the Start Date of generation to receive CfD difference payments. Generators who are required to have FMS arrangements in place should engage with LCCC on their proposed arrangements as early as possible after contract signature.
Ofgem advises LCCC on the content of a Generator’s FMS and Sustainability arrangements.
Billing statements issued after the date on which the Start Date Notice is given are delivered to the Generator by LCCC no later than seven business days after the end of the relevant Billing Period. The Billing Period is a 24hr period from midnight to midnight, as defined in the CfD Standard Terms and Conditions.
It specifies the CfD payments, known as the Net Payable Amount, payable to or by the Generator, adjusted for any reconciliation amounts or interest. If the amount is a positive figure it is paid to the Generator within 28 calendar days after the billing period to which the billing statement relates. If the amount is a negative figure, the Generator must pay it to LCCC within 10 business days following delivery of the relevant billing statement. The contents of the Billing Statement are set out in Condition 22.4 of the CfD Standard Terms and Conditions.
The CfD sets out how difference payments are calculated for both baseload and intermittent plants in Parts 5A and 5B of the CfD Standard Terms and Conditions. For both intermittent and baseload technologies, this is the sum of the difference between the strike price and reference price multiplied by the appropriate volume of electricity. The appropriate volume of electricity is determined by the actual generation, maximum contract capacity (if appropriate), RQM and CHPQM multipliers (where applicable) and other factors such as the transmission loss multiplier (where applicable).
Where the generation technology of the Project includes CHP or where FMS and Sustainability arrangements apply, factors for the quality of heat produced by the CHP plant and/or the renewable content of the fuel will also be factored into the difference payment calculation.
The Baseload Market Reference Price (BMRP) is calculated on a seasonal basis (for e.g.: the six months from April to September inclusive comprise the summer season) pursuant to condition 15 of the Contract for Difference Standard Terms and Conditions. Baseload prices are calculated using a traded volume weighted average based on forward season data received from ‘Baseload Price Sources’ specified in the CfD Standard Terms and Conditions (i.e. LEBA). The BMRP is published in April and October of each year.
The Intermittent Market Reference Price (IMRP) is calculated using GB Day Ahead Hourly Price received from ‘Intermittent Price Sources’ specified in the CfD Standard Terms and Conditions. An IMRP is calculated for every hour of the day pursuant to condition 21 of CfD Standard Terms and Conditions.
The Generation Tax provisions in the CfD provide a mechanism whereby compensation may be claimed where a ‘Generation Tax Change in Law’ has been implemented and will give rise to a Generation Tax Liability.
In circumstances where electricity generation is curtailed such that the Generator is unable to generate at a level they would otherwise have been able to achieve, the curtailment provisions may compensate the Generator for that loss. The circumstances in which compensation for curtailment may apply are specified in Part 11 of the CfD Standard Terms and Conditions.
In broad terms, ‘curtailment’ for the purposes of these provisions is designed to cover any circumstance effected by the National Electricity Transmission System Operator which prevents the Generator from exporting all of the power which the Facility would otherwise be able to generate to the grid during a specified period.
It does not cover any period where the restriction imposed on the Generator is due to the exercise of a Competent Authority’s powers in situations where the Generator is in non-compliance with any Required Authorisation. The curtailment provisions set out a number of other circumstances in which the curtailment compensation does not apply.
The Credit Support provisions in the CfD are designed to provide security to LCCC in the event of a Payment Failure and are dealt with in Part 13 of the CfD Standard Terms and Conditions.
A ‘Payment Failure’ is defined as any failure by the Generator to pay a Net Payable Amount by the required deadline (save in circumstances where there has been a Payment Disruption Event). If three or more Payment Failures occur in any 12 month period, then the Collateral Requirements can be triggered and LCCC is entitled to request the provision of collateral from the Generator.
The Collateral Amount that may be requested is based on a factor of 10 for the adjusted Maximum Contract Capacity of the Facility, operating at the Assumed Load Factor, over a 40 day period. The Collateral Amount must be provided in the form of ‘Acceptable Collateral’, either as a cash amount or as a ‘Letter of Credit from a bank or other financial institution with a minimum short-term rating of A-1 from Standard and Poor, P1 from Moody’s, or F1 from Fitch Ratings, or a bank/financial institution having a minimum rating as the LCCC may consent to or specify from time to time.
The CfD contains a template form Direct Agreement, which can be found at Annex 3 of the CfD Standard Terms and Conditions. If appropriate, LCCC shall enter into a Direct Agreement with, and at the request of the Generator, any person (or with the agent or security trustee on the relevant person’s behalf):
who is a Lender or an Affected Person with the benefit of first ranking security over all of the assets of the Generator; and
in whose favour the Generator assigns its rights under the CfD in accordance with Condition 79.6(A).
There is a dispute resolution procedure set out at Part 14 of the CfD. The dispute resolution procedure requires the parties to the CfD to firstly endeavour to resolve the dispute by a meeting of Senior Representatives of the parties. If they are unable to resolve the dispute then it can be referred to arbitration or to an expert for determination.
There have been a number of changes to the CfD since the first Allocation Round. Broadly, these changes:
allow unincorporated Joint Ventures to enter into CfDs;
prevent payment being due for any period of six or more consecutive hours where the Intermittent Market Reference Price (the GB Day Ahead Hourly Price) is negative;
exclude the costs of the OFTO from the 10% spend Milestone Requirement;
require the Generator to warrant that it is not facing pending, threatened or actual litigation;
amend the original FMS and Sustainability arrangements to account for changes to the FMS and Sustainability arrangements under the RO;
amend to the Metering Operational Framework and Technical System Requirements for the Private Network CfD to ensure they refer to the most up to date industry standards; and
Clarify what the BM Unit Metered Volume is expected to comprise.BEIS have also consulted on a number of changes to the CfD for the second Allocation Round, including in relation to the cumulation of state aid, definition of Foreseeable Change in Law and electricity storage. BEIS will publish its consultation response in due course and following that a revised version of the CfD including the relevant changes will be published.
A Generator whose Project's planning permission is subject to a judicial review is not precluded from applying for a CFD. It is for CFD applicants to decide whether to apply for a CFD and whether they will be able to deliver the progress on the Project in accordance with the dates applying to the Milestone Requirement, Target Commissioning Window and Longstop Date.
Potential applicants and CFD Generators should also note the ’non-delivery disincentive’ mechanism applying in circumstances where a Generator fails to sign a CFD which is offered to it (or where the CFD, having been entered into, is terminated within 24 months of the date of the CFD notification).
Yes, the Initial Installed Capacity Estimate (“IICE”) can be reduced in advance of the Milestone Delivery Date (MDD) but to no less than 75% of the IICE as a Permitted reduction by giving notice prior to the MDD. IICE may also be reduced for a Relevant Construction Event. Please refer to Conditions 5 and 6 of the Conditions (Adjustments to Installed Capacity Estimate: Relevant Construction Event and Adjustments to Installed Capacity Estimate: Permitted reduction).
The IICE, Installed Capacity (IC) and Final Installed Capacity (FIC) in MW are all expressed as net. Any parasitic electrical load and/or electrical losses as measured at the export meter without which the Facility would not be able to continuously generate should be deducted to calculate IICE, IC and FIC.
The parasitic electrical loads and electrical losses that should be deducted when determining the ICE are:
a) any parasitic electrical load generated by auxiliary equipment required to operate the Facility for a sustained period of time safely and efficiently at the maximum capacity possible and without causing damage to the Facility (expressed as a percentage of the Installed Capacity);
b) any electrical losses within the Facility from the generating units to the export metering point when generating at the maximum capacity possible and without causing damage to the Facility (expressed as a percentage of the Installed Capacity); and
any parasitic electrical load and/or electrical losses required to operate equipment to handle or prepare a material, substance or such other matter which is not necessary for the Facility to operate should not be deducted when determining IC.
The IICE is the capacity in MW for which successful allocation has taken place and is stated in clause 7.1 of the CFD Agreement. The IICE is informed by the aggregate of the nameplate capacity/specification of generating assets comprising the Facility. The Generator should be aware of the requirement not to exceed the FIC on final commissioning which will be determined by Commissioning Tests.
FIC shall not exceed the ICE. The Generator is entitled to receive settlement payments up to an output that corresponds to the Maximum Contract Capacity. The Maximum Contract Capacity is the ICE until the FIC, and then it is the FIC.
No. FIC shall not exceed ICE. Additional generating assets that are separately metered and not a part of the Facility are not subject to the CFD and to all intents and purposes are distinct from the Facility and any obligations LCCC has under the CFD.
Generators should not overbuild or install turbines whose maximum generating capacity, in aggregate across the Facility, exceeds the ICE. Please note in this regard that the FIC cannot exceed the ICE. The ICE of necessity cannot be more than the IICE. The Ice is the IICE as reduced in accordance with Conditions 5 and 6.
The Generator must at all times comply with the Conditions. The Generator must at all times comply with all Laws and Directives, promptly obtain and comply with all Required Authorisations (including planning consents) and at all times comply with all terms of those Industry Documents to which it is a party.
Changes and updates incorporated into the Allocation Round 2 CFD templates do not automatically apply to existing CFD holders. There are mechanisms within the existing Allocation Round 1 CFDs (and Investment Contracts) for making contractual amendments, as there are within the Allocation Round 2 templates. LCCC will consider whether any of the changes made to the Allocation Round 2 CFD templates would be suitable amendments to make to the Allocation Round 1 CFDs (and Investment Contracts) under the contractual change procedures that are set out in the CFD (or Investment Contract).
There is no right or mechanism to switch from a standard (directly connected) CFD to a private network CFD or vice versa. A private network CFD does not have the necessary provisions in it to work for directly connected Facilities and similarly the Standard CFD lacks the necessary provisions to work in a private network environment.
There is no restriction in the CFD that prevents an ACT with CHP from receiving RHI payments.
There is no right or mechanism to switch to or from a private network (other than for an islanded private network generator that has 18 months to find an alternative route to market if its electricity offtaker is lost). Applicants should therefore consider their choice carefully at the application stage.
We would direct generators’ to Elexon’s website where information about the P350 modification is available: https://www.elexon.co.uk/mod-proposal/p350/. In particular the Load Flow Modelling Report may be useful to you in understanding the potential impacts on your generating station: https://www.elexon.co.uk/wp-content/uploads/2016/07/P350-Load-Flow-Modelling-Final-Report-v2.0.
The CMA’s decision to make the Transmission Loss Multiplier (TLM) locational will impact on generators difference payments depending on their location, as intended by the CMA. This will apply regardless of any change to the CFD Standard Terms and Conditions as it is provided for in the BSC.
However, in relation to the calculation for Strike Price Adjustment in the CFD, in order to uphold the original policy intent to “hold CFD generators neutral to any change in the average transmission losses allocated to generators under the BSC” (p29, P350 Assessment Report, 12/01/17), LCCC proposes to align the definition of TLM(D) used for the Strike Price Adjustment with the volume weighted average (across all GB generators) of the transmission loss multiplier as follows:
“TLM(D) means one (1) minus the volume weighted average of the transmission loss multiplier allocated in accordance with the BSC to BM Units belonging to delivering Trading Units or any new or substituted multiplier or factor which is in the nature of, or similar to, a transmission loss multiplier”•
We consider this to be a change that will need to be applied to all CFD generators prior to the 1 April 2018 commencement date for the CMA decision, without which Elexon would need to make an adjustment in the BSC calculation.
Anyone, including the generator, can own the private network. However, it does not need to be owned by the generator. This ownership issue will impact the information requirements that need to be provided at the application stage.
Correct. No BSC meters can or will be used for accurately measuring the Net Metered Output under a Private Network CFD.
Non-consumer loads and other users elsewhere on a private network are outside of the Facility’s metering and do not use the Facility Metering Equipment. As such, other users of a private network can determine their own metering requirements without reference to the CFD.
The relevant meters are the ones that exclusively measure all the input and output electricity of the Facility. They must be separate from any other input and output electricity and together accurately meter the net output of the Facility.
Guidance on installed capacity is already on LCCC’s website. Advanced Conversion Technology (“ACT”) plants generate electricity using only Advanced Fuels. An Advanced Fuel is a gas or liquid fuel produced directly or indirectly by gasification or pyrolysis and with a gross calorific value of no less than 2 megajoules per cubic metre.
We understand that by definition an ACT plant includes gasification and/or pyrolysis as integral to the Facility's ability to generate and in most instances fully integrated as part of the Facility, such that generation cannot continuously take place without these assets in operation.
In calculating Initial Installed Capacity Estimate (“IICE”), generators should deduct the parasitic load for gasification (or pyrolysis as relevant) which is used solely for gasification and/or pyrolysis and not for other ancillary purposes (other than a Permitted Ancillary Activity, such as cleansing of the syngas) and the parasitic load for other Permitted Ancillary Activities (such as cleansing of the syngas).
For ACT projects using a boiler to generate steam we assume that all steam will be used for the generation of electricity. Should Generators intend that steam be used for anything other than electricity generation, such as an ancillary industry process that is not a Permitted Ancillary Activity, they should consult with us at their earliest convenience.
Please note that the above guidance does not apply to ACT with CHP schemes.
Generators are encouraged to discuss their project with us at earliest convenience. We reserve the right to review each project on a case by case basis to ensure IICE is appropriately determined.
Final Installed Capacity must be between 85% to 100% of the Installed Capacity Estimate for offshore wind and 95% to 100% for all other technologies. For the determination of Initial Installed Capacity Estimate generators should deduct losses and parasitic loads (capacity is measured as a net figure). Loads for assets not being part of the Facility should not be included. There is no opportunity to further increase the Initial Installed Capacity Estimate.
The grace period is not limited / restricted to post commissioning events.
There is no minimum biogenic content requirement for ACT feedstock. However, the Renewable Qualifying Multiplier will apply to ACT facilities having the affect of reducing CFD payments for feedstock with lower renewable content.
The Renewable Qualifying Multiplier (RQM) is calculated as the percentage of biogenic content all fuels used within a facility in a RQM Calculation Month.
A is the Energy Content of all of the Fuels with Variable Renewable Content used in generating that Facility’s gross output during the relevant RQM Calculation Month, less the Energy Content of any Fossil Fuel from which those Fuels with Variable Renewable Content are in part composed; and
B is the Energy Content of all of the fuels used in generating that Facility’s gross output during that RQM Calculation Month;
The Renewable Qualifying Multiplier (RQM) shall apply only if the RQM is expressed to apply to the Contract for Difference in the CfD Agreement.
ACT facilities must generate electricity from Advanced Fuels which have been produced directly or indirectly from the Gasification or the Pyrolysis of Waste or Biomass (please refer to the definition of Advanced Fuels in the CFD Agreement). The specification of the ELTs feedstock must fall within the meaning of Waste as given to that term in the 2008 Waste Framework Directive 2008/98/EC.
These frequently asked questions and responses (“FAQs”) have been prepared by Low Carbon Contracts Company Ltd ("LCCC") in response to queries raised by stakeholders in relation to the content of the Contract for Difference (“CFD”), which is comprised of the CFD Agreement and CFD Standard Terms and Conditions (“Conditions”), as published by the Department of Energy & Climate Change on 29 August 2014. The FAQs are also applicable to Investment Contracts (“ICs”) but users of this website are advised to fully review the equivalent clauses in their ICs as there are differences between the CFD and the IC.
These FAQs are subject to and are provided on the basis of the following:
- The FAQs do not supersede or replace the provisions of the CFD or IC and are not intended to and do not constitute legal, investment, commercial or operational advice and should not be relied upon as such. Users of this website should not place reliance upon these FAQs and should refer to the full terms of the CFD or IC, and/or consult their professional advisors where they require information or advice on matters relating to the CFDs or ICs generally and/or any CFD or IC to which they are a party.
- The FAQs reflect the current thinking and approach of LCCC and should not be viewed as in any way as binding on LCCC.
- It is our intention to keep the FAQs under review and to publish revised issues from time to time.
Defined terms used in the FAQs but not defined therein have the meanings prescribed to them in the CFD or IC (as applicable) and the Energy Act 2013.