Government has released the maximum strike prices for the contracts for difference (CfDs) that will provide support for eligible renewable generation that is commissioned between 2014 and 2019, subject to the passing of the Energy Bill and EU State Aid approval. It has also announced the 16 renewable projects that are still under consideration for an early investment contract.
Competitive allocation is looking more likely
After the issue of the initial suite of early investment contracts, Government has confirmed its intention to move to competitive price discovery for all low-carbon technologies "as soon as possible" – something which is likely to be required in order to obtain EU State Aid approval for the proposed scheme. This may mean that for some renewable technologies, competitive allocation rounds will take place instead of a "first come first served" phase, with the published prices forming the maximum price that can be bid by generators. Government has said that it does not expect payments under the CfDs to commence until 1 April 2015.
Offshore wind gets more; onshore wind and solar get less
The strike prices for biomass conversion, wave and tidal stream are the same as those published for consultation in June 2013. Offshore wind has seen a slight increase (for projects commissioning in 2018/2019), alongside hydro, advance conversion technologies, anaerobic digestion and dedicated biomass plant (with combined heat and power, CHP), with geothermal receiving the biggest increase in prices across the 2014-2019 period. The technologies which are subject to a decrease to the previous published prices are onshore wind, solar PV, energy from waste (with CHP), landfill gas and sewage gas.
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Some new policy positions on the CfD terms
Government has announced a few changes to the draft CfD terms, previously published in August 2013:
- Capacity reductions – Government will allow downwards only capacity adjustments of 25% without penalty between the date that the contract is allocated and the date that the developer is required to show a substantive financial commitment to the project (increased from 5%); as before, a further 5% will be permitted, without penalty, between that date and the longstop date for commissioning. As a result, it is expected that the CfD terms will still allow up to a 30% capacity reduction, but it will not result in any downwards strike price adjustments;
- Unexpected events – the protection for unexpected geological conditions (which would allow a capacity reduction prior to fulfilment of the conditions precedent) will be extended to include unexpected environmental events or archaeological finds; Government has confirmed that there will be general force majeure relief as well as relief against delays in connection;
- Change in circumstances – Government has indicated that there will some additional protection where a generator is prevented from generating due to a change in law, and is not otherwise compensated in respect of the curtailment; Government has confirmed that there will also be a strike price adjustment for changes in charges covering transmission losses and balancing services costs (it seems that changes to Transmission Network Use of System Charges will still be excluded);
- Reference price certainty – changes, yet to be published, are intended to give greater reference price certainty including giving baseload generators the option to switch to an annual from a seasonal reference price (instead of a requirement to do so);
- Generator collateral – in the June draft of the CfD, a collateral requirement would have been triggered if the CfD counterparty reasonably considered that the strike price would be below the reference price for a set period of time; Government now proposes that collateral will only be triggered if the generator has already defaulted on a payment obligation;
- Phased schemes – for a phase scheme, the strike price for all phases will still be determined by the target commissioning date for the first phase, but the amount of capacity that must be registered for the first phase has been reduced from 35% to 25% of total project capacity.
Further details of the contract award process for early investment contracts
16 applications are still under consideration for Final Investment Decision (FID) Enabling contracts for renewable generators, representing 8GW of nameplate capacity. DECC has indicated that draft technology specific contracts will be issued in December 2013, with finalisation of the terms in March 2014 once the generic CfD terms are settled. Where this does not prove possible, DECC proposes that the contracts are signed with the automatic incorporation of the remaining CfD terms, subject to the right of the generator to withdraw from the CfD.
Contracts will be awarded once DECC has conducted an affordability assessment based on the Levy Control Framework, with an allocation from each technology type, proportionate to the number of applications for that technology.
DECC's timetable could see the first FID Enabling contracts being signed in April 2014, but this is subject to the finalisation of the EMR Delivery Plan and the CfD standard terms, as well as the passing of the Energy Bill and State Aid clearance. The detail of DECC's proposed allocation process and indicative timetable can be found in Update 3: Contract Award Process.
DECC intends to publish the final EMR Delivery Plan, and an update to the CfD terms, later in December. Draft FID Enabling contracts are due to be issued to the qualifying generators, together with an assessment of their current rankings in DECC's affordability assessment, on 19 December 2013.