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All change for Contracts for Difference

The government has issued a consultation setting out proposals for changes to the Contract for Difference (CfD) regime. The main focus of the consultation is on ensuring that payments made under CfDs are not cumulated with other state aid. However, there is also recognition of the move towards storage being an important consideration for generators. 

A CfD is a contract between a low carbon electricity generator and the Low Carbon Contracts Company (LCCC).  

The consultation envisages that changes to the provisions relating to the cumulation of state aid, the definition of foreseeable changes in law, and other minor and technical changes will be brought in before the next allocation round. However, changes to facilitate the use of storage on CfD sites may take longer to introduce.

State aid

The proposed changes could result in an increased administrative burden for generators. Directors' certificates will be required:

  • To confirm whether any state aid has been received in respect of, or has benefited, a project; and
  • To demonstrate that any state aid that has benefited a project has been repaid with interest.

Payments under a CfD will not be made until the generator has provided these certificates.

Generators will also have to make sure that no state aid is received during the term of the CfD. If state aid is received, CfD payments will be suspended until the state aid has been repaid with interest. CfD payments will then be resumed, and any that were suspended will be paid, but without interest.

The consultation proposes the introduction of new conditions relating to waiver to cover the situation where the party who granted the state aid refuses, or is unable, to accept repayment, perhaps  because it has ceased to exist. In these circumstances, it is proposed that the state aid, plus interest, will be set off against any CfD payments due. CfD payments will, therefore, be suspended until the equivalent sum of state aid has been repaid. If the CfD ends before all repayments have been made, the generator will be required to pay the outstanding amount to the LCCC within ten working days.

The LCCC will be able to require a generator to provide evidence to show that it is complying with its obligation not to receive state aid.  A generator will have ten working days to provide this evidence.

Storage

Although the use of storage is not prohibited within facilities or projects that hold CfDs, generators must comply with the metering provisions within the CfD framework. These do not expressly provide for storage.

CfD payments only support electricity generated by a facility. Therefore, if generators want to import electricity to store it and then sell it on, they will need to ensure that the imported electricity is excluded from the figures used to calculate CfD payments.  The consultation proposes changes to the CfD standard terms and conditions to specify how storage should be used within the CfD regime.

The consultation also proposes changes to the definition of Foreseeable change in Law. These include specifying that a change is foreseeable if a judicial review is brought against a project's planning consent within the usual time limits, even if it has not been commenced or threatened, and was not pending, prior to the signing of the CfD. Other minor and technical changes are also suggested.

The consultation closes on 8 June 2016.

Contributor: Alexandra Holsgrove Jones

This publication is intended for general guidance and represents our understanding of the relevant law and practice as at May 2016. Specific advice should be sought for specific cases. For more information see our terms & conditions.

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