The Department of Energy and Climate Change (DECC) has launched a consultation on the planned overhaul of Contracts for Difference (CfD) system. The scheme was created to provide long-term price stabilisation to incentivise investment in low carbon generation. In March the Chancellor, George Osborne, announced that £730 million would be made available for CfD auctions over the course of the current Parliament. £290 million will be available in the first auction, which is due to take place before the end of this year.
The consultation proposes a series of amendments to the CFD contract and CFD regulations, intended to apply to future CFD allocation rounds to ensure the scheme is compliant with EU state aid rules. When it was granted approval by the European Commission in 2014 it was on the basis the projects benefitting would not be able to take advantage of any other form of state aid.
Projects that receive Contract for Difference (CfD) funding may be forced to pay back any other state aid they have received prior to receipt of the subsidy under the proposed overhaul of the scheme. Such projects will also be prevented from receiving state aid for the remainder of the contract and any found infringing the rules will have CfD payments suspended until it was returned and subsidies which could not be returned would be deducted from future CfD payments.
Whilst developers are already prevented from securing CfDs where they are receiving support via the Renewables Obligation, the Feed-in Tariff or the capacity market, the opportunity to access a number of other forms of state aid have remained.
DECC is also recommending a clarification of the legal definition in the contracts of “foreseeable changes in law” to ensure neither CfD holders nor the Low Carbon Contracts Company (LCCC) are left out of pocket by legislative and regulatory changes which could not have been predicted.
In addition there is also suggestion to add a more clearly defined status for energy storage, a number of minor technical changes to the contracts and a call for evidence on further possible changes to CfDs to tackle issues such as speculative bidding and the risk posed to the Levy Control Framework budget by uncertain load factors.
The deadline for response is 8th June 2016. We are formulating our response to the consultation and would welcome your feedback to incorporate into this. To have your say, please email the compliance team at compliance@carbon2018.com or alternatively complete the contact form. To discuss this further please call Melanie Kendall-Reid on 01252 87 87 22.