A detailed draft of the contract that Government will offer investors in low-carbon energy generation was published today. At the same time, DECC released further information on the methodology that will be applied in allocating the new contracts for difference (CfDs) – the subsidy structure that the Government is promoting as the most efficient way to provide long-term support for all forms of low carbon generation – including nuclear, renewables and carbon capture & storage.
The proposed CfD contract terms and the allocation methodology are open to consultation, with the Government hoping to finalise proposals by the end of this year. In the meantime, the allocation process looks like this:
- Contracts will be initially allocated on a 'First Come, First Served' (FCFS) basis, whilst there is sufficient headroom in the CfD Budget. When 50% of the CfD Budget has been allocated through FCFS allocation, the Delivery Body will check whether Government has room within Levy Control Framework (LCF) to allow FCFS allocation to continue. If there is insufficient LCF budget available, the Delivery Body will begin to allocate CfDs through Allocation Rounds. The project that triggers the move from FCFS to Allocation Rounds will not receive a CfD through the FCFS process. The move to Allocation Rounds for a given delivery year will trigger the move to Allocation Rounds for all delivery years.
- Once Allocation Rounds are in operation, the Delivery Body will seek to run two rounds per year. The application requirements for the developer will be similar to that for the FCFS period of allocation, though applicants can choose to provide a sealed bid setting out the strike price they would be prepared to accept in the event of a constrained allocation round.
- Initially, Allocation Rounds are expected to provide all eligible applicants with a CfD. At some stage there may be more capacity trying to secure a CfD than can be supported by the remaining Budget for a particular delivery year (or across multiple years). At this point the Delivery Body will, again, check with Government whether the wider LCF budget can support unconstrained rounds continuing for that delivery year. If insufficient LCF budget is available then a constrained allocation process will be run allowing projects to be ranked by price with CfDs being secured by the least expensive projects.
Disclaimer
The material contained in this article is of the nature of general comment only and does not give advice on any particular matter. Recipients should not act on the basis of the information in this e-update without taking appropriate professional advice upon their own particular circumstances.