What happens to unspent budget in minima auctions?
If the budget assigned to minima auctions is not used fully, any remaining budget will be available to all technologies (including those subject to minima) in the general Pot 2 auction.
Shouldn’t the AR6 budget be higher because of higher project costs?
This is the largest budget ever – almost seven times higher than the budget for AR5. Higher project costs are already reflected in significantly higher Administrative Strike Prices (the maximum price government will pay for each technology), published in November 2023.
This is an ambitious budget that demonstrates decisive action to deliver clean power by 2030 while ensuring value for money for billpayers.
Why is there no minimum for Floating Offshore Wind?
We have a £270m budget for emerging technologies, including floating offshore wind. This is the biggest ever budget for this group of technologies.
What minima will apply in AR6?
Pot 2 will have a monetary minimum of £15m on Tidal Stream – an increase of £5m compared to the original budget announced in March (which was £10m). This provides Tidal Stream projects with ringfenced budget to increase the likelihood of projects being successful.
Does the budget mean that these projects will cost ~£1.5 billion to support for their lifetime?
No. The budget is presented in 2011/2012 prices and is an estimate of annual support in the first four years following deployment. Actual support figures will depend on a range of factors including the auction clearing prices and future wholesale electricity prices, which are highly uncertain.
The two-way design of the scheme means that when wholesale prices are lower than the agreed CfD price, generators receive a top-up payment, but when wholesale prices are high, as seen in 2022, generators pay back into the scheme. This means the scheme provides valuable price certainty in the context of the impacts of volatile global gas prices.
Our evidence shows that renewables are still the cheapest electricity source to build and operate. Having a renewables-heavy electricity system will protect us from future volatile gas markets, support energy security by having more homegrown generation and keep us on track for our net zero obligations.
How will the maxima work in AR6?
The maxima will be applied on a monetary budget (£million) basis and will operate as a ‘hard’ constraint.
Technologies that are subject to maxima clear at their own price, rather than a clearing price determined by the whole pot. The maxima do not separate projects in the auction, different technologies still compete against each other in the pot.
The rules on how maxima will operate within the allocation process are set out in the Allocation Framework.
How will the minima work in AR6?
The Tidal Stream minimum will be applied on a monetary budget (£million) basis and will operate as a ‘hard’ constraint (i.e., the minimum auction will close when this limit is breached).
The minimum allows Tidal Stream projects first access (up to £15m for tidal stream) to the total Pot 2 budget of £270m (2011/2012 prices).
The rules on how the minimum will operate within the allocation process are set out in the Allocation Framework.
What maxima will apply in AR6?
Pot 1 will have monetary maxima of £185m on Solar PV, Onshore Wind and Remote Island Wind. This is to create technology-specific clearing prices. This allows competition between technologies, gives us important price discovery, and avoids a cheaper technology’s clearing price being dragged upwards. They are set at the level of the total pot Budget, so they do not influence the mix of technologies. Therefore, the cheapest projects win.
Pot 2 will have a monetary maximum of £8m on Geothermal.
Pot 3 will have monetary maxima of £1.1bn on ‘Permitted Reduction’ projects and new AR6 projects. The maximum on permitted reduction (AR4) capacity sets a separate clearing price for AR4 capacity versus new projects. A maximum set at this level does not limit the potential AR4 capacity that could be successful, however they are subject to the same constraints as the rest of Pot 3.
Why has the budget increased?
Regulations allow Secretary of State to revise the budget upward. This power is usually exercised upon receiving the formal valuation of qualifying projects from the National Grid ESO. This announcement means there is more budget available for projects and signifies another step forward in the government’s mission to deliver its clean-power-2030 goal
What is the budget for AR6?
The total budget for AR6 is £1.555 billion, making it the largest CfD budget ever. This is a £530 million increase on the original budget announced in March.
There will be £185m for Pot 1 (established technologies), an increase of £65m; £270m for Pot 2 (emerging technologies), an increase of £165m; and £1.1bn for Pot 3 (offshore wind), an increase of £300m.
Budgets are presented in 2011/2012 prices. These figures are an estimate of annual support in the most expensive year in the first four years following deployment. Actual annual figures will vary over the lifetime of the contract depending on future wholesale electricity prices, and outcomes of the competitive auction process.
What will happen if there is a general election?
On 22 May 2024, the Prime Minister announced that a General Election will be held on 4 July 2024.
The election period will coincide with Allocation Round 6 (AR6), which is currently in progress and is expected to conclude at some point during the summer depending on the timeline scenario to which the round runs.
During the election period, essential business, including routine business necessary to ensure the continued smooth functioning of government and public services, must be allowed to continue. This can include a CfD allocation round that is already open, although significant decisions and announcements about the round may be subject to the latest Cabinet Office advice on the election period.
Following the Prime Minister’s announcement, Cabinet Office has issued election guidance.
Can a CfD unit be co-located with an asset that has secured another form of government subsidy, e.g. a capacity agreement, or would it be an excluded application?
An applicant must include a declaration with its application confirming that the proposed CfD unit is not an ‘excluded application’ under regulation 14 of the Contracts for Difference (Allocation) Regulations 2014 (as amended). An application would be excluded, for example, if it is subject to a capacity agreement under the Capacity Market or is awaiting determination of an application for a capacity agreement. However, a generating asset in receipt of another form of government subsidy, such as under the Capacity Market, may be co-located on the same site as a proposed CfD unit provided the electricity to be generated by the CfD unit is metered separately from the other (non-CfD) facility. The applicant must confirm this in the declaration it submits to National Grid ESO with its application to participate in Allocation Round 6.
Applicants should familiarise themselves with Schedule 5 of the Allocation Framework, as well as the CfD Standard Terms and Conditions, which set out further metering requirements, including the need for a CfD unit to be metered separately from other facilities using a BSC-compliant meter (note that the BSC element of this requirement does not apply to the CfD Private Network Agreement, but a CfD unit must still be metered separately from other facilities under this Agreement).
How much capacity do you expect will be successful in Allocation Round 6?
The volume of capacity successful will depend on a range of factors, including bid prices and the volume of eligible applications. We cannot prejudge the outcome of AR6.
Why are your load factors so high? If we used more realistic load factors, couldn’t we buy the same capacity with less money?
Valuing projects using high estimated load factors reduces the risk that in-life spend exceeds spend forecasted at the point of allocation. If CfD-supported projects were to generate more than expected, the support costs paid by consumers would be larger than initially forecast.
Load factors impact the overall magnitude of the budget, but their value does not significantly impact the running of the auction or which projects may be successful. This is because budgets are set based on a wide range of factors, such as an assessment of the pipeline of projects that could participate in the auction, rather than being a pre-determined monetary constraint.
For the budget calculation in Allocation Round 6 (AR6), load factors will also factor in economic curtailment. This change is intended to reflect future market conditions as renewables penetration increases and has led to a moderate reduction in the estimated load factor for technologies for which a technology-specific reference price is applied.
More details on load factors used in the AR6 budget are published in the AR6 Allocation Framework and accompanying note to the AR6 budget notice (PDF, 208KB).
Why are the reference prices used to calculate budgets lower than those used by industry? Wouldn’t lower reference prices be better because more capacity could be successful for the same budget?
As is set out in detail in the accompanying note to the AR6 Budget Notice (PDF, 208KB), this is a misunderstanding of the role the budget plays in the auction.
The reference prices we use for the CfD budget are an output from the main power model of the Department for Energy Security and Net Zero and are characteristic of decarbonisation pathways that are net-zero-consistent.
Budgets are set based on a wide range of factors, such as an assessment of the pipeline of projects that could participate in the auction, rather than being a predetermined monetary constraint. If reference prices were higher or lower, the budget would change accordingly and approximately the same capacity could be successful in the auction.
Aren’t the Allocation Round 6 budget parameters too complex?
Government makes decisions about CfD auction design taking into account a wide range of evidence. This includes our best knowledge about the project pipeline to carefully balance the need to ensure renewable deployment while delivering at low cost to the electricity consumer.
The accompanying note to the Allocation Round 6 (AR6) Budget Notice (PDF, 208KB) and the AR6 Allocation Framework explain how the budget parameters will work in the auction.
If prospective applicants have queries, they can submit questions via the contact page.
What does it mean when maxima are the same size as the total pot budget?
Where the maxima are the same size as the total pot budget, the given technology is not constrained any more than they would be without a maxima. Instead, the given technology clears at its own price rather than the clearing price determined by the whole pot. This helps to ensure competitive price discovery by avoiding the price of one technology being dragged upwards by another, more expensive technology. The maxima do not separate projects in the auction; projects still compete against each other in the pot.
What is ‘Permitted Reduction’ capacity in Allocation Round 6?
This refers to capacity withdrawn from projects previously awarded CfDs under the permitted reduction process in the contract, which allows a maximum of 25% of original capacity to be withdrawn. We are aware some projects may apply to Allocation Round 6 with this withdrawn capacity.
To support a fair competition and support value for money, we are distinguishing Permitted Reduction capacity (capacity withdrawn from previously awarded CfD projects) and new capacity.
Have any technologies been removed from the list of eligible technologies?
No. Any removal of technologies would be subject to a consultation.
If a connection agreement covers more than one project by the same generator, would it be sufficient to use the same connection agreement for the CfD application for all projects covered?
Yes, in that scenario it would be sufficient to use the same connection agreement for the CfD application, for all projects covered by the agreement. The connection agreement should allow for the combined capacity of the multiple projects, and all projects should be separately metered
Will there be any stakeholder events, and if so, when?
Details of any Allocation Round 6 (AR6) events will be added to the AR6 section of the events page once confirmed.
Why have you created an offshore wind pot?
Allocation Round 6 (AR6) will feature three auction pots, with offshore wind in its own auction pot. This change reflects the large pipeline of offshore wind expected this round and the strength of competition amongst established technologies in Pot 1.
A three-pot structure for AR6 will support competition and deployment across Britain’s diverse portfolio of renewable technologies.
Has the current economic environment been taken into account when setting Administrative Strike Prices for Allocation Round 6?
Administrative Strike Prices (ASPs) have been set based on independent evidence on generation costs. Considering recent market volatility, and following industry engagement, we undertook a detailed analysis of our cost assumptions and have made revisions to ensure the current macroeconomic environment is reflected in ASPs.
The CfD scheme also provides generators with protection from inflation in the contract by indexing the strike price to the Consumer Price Index. This is an important protection for developers and remains one of the most generous indexation schemes when compared against other countries.
Why have Administrative Strike Prices increased compared to Allocation Round 5?
Since Allocation Round 5, we have undertaken a comprehensive review of our independent evidence base on project costs for renewable technologies eligible to participate in the CfD scheme. This demonstrates the material cost pressures being faced by renewable project developers in the context of challenging macroeconomic conditions.
Administrative Strike Price (ASP) assumptions have been revised based on the latest available, robust cost evidence. This includes updates to factors such as capital and operating costs, and ensuring our assumptions are reflective of our level of ambition for technologies key to our decarbonisation pathway. Details of all changes are available in the published ASP methodology document.
Which technologies will be eligible to compete in Allocation Round 6?
Pot 1
Energy from Waste with CHP
Hydro (>5MW and <50MW)
Landfill Gas
Onshore Wind (>5MW)
Remote Island Wind (>5MW)
Sewage Gas
Solar Photovoltaic (PV) (>5MW)
Pot 2
Advanced Conversion Technologies
Anaerobic Digestion (>5MW)
Dedicated Biomass with CHP
Floating Offshore Wind
Geothermal
Tidal Stream
Wave
Pot 3
Offshore Wind
What changes have you made to the Administrative Strike Price methodology for Allocation Round 6?
The overall methodology for producing Administrative Strike Prices (ASPs) is largely consistent with previous rounds. The Department for Energy Security and Net Zero has comprehensively reviewed underlying assumptions to ensure they reflect the current macroeconomic environment and ambition for technologies key to our decarbonisation pathway.
Technology-specific updates have been made to account for cost uncertainty, supply chain complexity and limited price discovery from Allocation Round 5, most notably for the wind technologies. More information on the ASP methodology can be found in the published methodology note.
Would being pre-qualified for the Capacity Market (CM) be considered being in receipt of subsidy and, therefore, ineligible? Or would you need to have a CM Obligation?
If an application is prequalified in the CM and an application is made to the CfD, it will be ineligible (unless or until a determination is made that the CM application is unsuccessful). This is based on Regulation 14(10)(c) and the interpretation offered in Regulation 14(10A) of the Contracts for Difference (Allocation) Regulations 2014 (as amended).
The Administrative Strike Prices for some technologies are higher than others – does that put those technologies at a disadvantage in the auction?
The CfD is a competitive auction process, incentivising cost-effective projects to come forward, balancing delivery of our decarbonisation commitments with potential impacts on consumer bills.
Administrative Strike Prices by technology are based on the Department for Energy Security and Net Zero’s view of potential project costs and future revenues, but the Department does not have full information on individual projects and their associated costs. It is for individual developers to determine the price they are comfortable bidding at, based on their own assessment of potential future costs and revenues.
When will CfD notifications be issued? When will we know who the winners are?
Allocation Round 6 results are expected to be notified and published around 28 June–1 July 2024 under the shortest timeline scenario and around 3–4 September 2024 under the longest timeline scenario.
Could the timeline dates change?
It is unlikely that there will be any changes to the Allocation Round 6 (AR6) timeline. However, should any changes need to be made before AR6 opens, the microsite timeline will be updated and the changes will be communicated to industry stakeholders.
When will Allocation Round 6 open to applications?
The Allocation Round 6 application window will open on 27 March 2024 and close on 19 April 2024.
Are there any new technologies for Allocation Round 6?
No. Any introduction of new technologies would be subject to a consultation.
What do Allocation Round 6 Administrative Strike Prices represent in today’s prices?
Administrative Strike Prices are presented in 2012 prices and can be adjusted to today’s prices by using the Consumer Price Index inflator stated in the published Allocation Round 6 core parameters notice.
How do you produce Administrative Strike Prices?
The published Administrative Strike Price (ASP) methodology note sets out the approach for determining ASPs for the sixth Contracts for Difference allocation round.
Are these changes to Administrative Strike Prices in Allocation Round 6 going to stay in place for Allocation Round 7?
The assumptions and methodology used to derive Administrative Strike Prices (ASPs) for Allocation Round 6 (AR6) will be reviewed ahead of AR7 to ensure ASPs best reflect the latest view of potential project costs and future revenues. An assessment of economic conditions will be undertaken to judge whether adjustments implemented for ASPs in AR6 will be necessary for AR7.
Will pot structure change every CfD round/will you remove the offshore wind pot in Allocation Round 7?
We review the CfD auction parameters every year and will make changes to reflect the pipeline of eligible projects and that support the objectives of the scheme regarding decarbonisation, consumer costs and security of supply.
What will the delivery years for the sixth allocation round be?
Applicable Delivery Years for AR6 will differ across the three auction pots.
- Delivery Years for Pot 1 will be 2026/27 and 2027/28.
- Delivery Years for Pot 2 will be 2027/28 and 2028/29.
- Delivery Years for Pot 3 will be 2027/28 and 2028/29.
Will you publish Delivery Years for future rounds?
Delivery years are determined prior to each allocation round, along with other auction parameters. This makes it difficult to set out exact delivery years for future rounds.
Why are the delivery years for Pot 1 in Allocation Round 6 the same as Allocation Round 5?
The established technology pot in Allocation Round 5 (AR5) had three delivery years, with the first two years (2025/26 and 2026/27) intended for technologies that are quicker to build such as onshore wind and solar. The latest delivery year in AR5 was added to accommodate offshore wind projects, which tend to have a longer build time. With offshore wind’s move to Pot 3, Pot 1’s delivery years in AR6 are +1 from the earlier two years available in AR5.
Why are there different timeline scenarios?
There are five different timeline scenarios to account for any appeals that may trigger the appeals process. However, we will be engaging industry to streamline the appeals process for future rounds.
What changes are you making to the Allocation Framework for Allocation Round 6?
Changes have been made to several areas of the Allocation Framework. The changes reflect policy decisions made ahead of Allocation Round 6 (AR6) and clarify existing terms and conditions. Further details are available on the AR6 Allocation Framework GOV.UK page.
When will the government go ahead with CfD Sustainable Industry Rewards (formerly non-price factors)?
The government has launched an eight-week consultation on introducing a CfD Sustainable Industry Reward scheme. CfD Sustainable Industry Rewards is the new name for what were once called non-price factors. The consultation closes on 11th January 2024.
If introduced, the aim is to publish the allocation framework and budgets of Sustainable Industry Rewards for CfD Allocation Rounds 7,8 and 9 in summer 2024. Requirements for AR7 could be lighter-touch due to the limited lead-in times.
Who is eligible for Sustainable Industry Rewards?
All offshore wind and floating offshore wind projects are eligible for CfD Sustainable Industry Rewards (SIRs) regardless of their size (they will no longer need to submit Supply Chain Plans). Other technologies eligible to enter the CfD will still need to submit a Supply Chain Plan if their project exceeds 300MW (these will not be submitting SIRs).
What happens if a project does not deliver its CfD Sustainable Industry Reward proposal?
Projects will be monitored to ensure delivery. Proposals that only partly deliver their commitments will only receive payments for the portioned delivered. Projects that fail to deliver any of their commitments will not receive any payments. Projects that do not deliver on the minimum standard required of Sustainable Industry Rewards could be subject to a form of performance adjustment mechanism.
When will the CfD Sustainable Industry Rewards allocation take place?
We are consulting on the optimal timing of the CfD Sustainable Industry Rewards (SIRs) allocation as part of the consultation. We have proposed it takes place six months before the opening of a CfD allocation round (AR) and that CfD SIRs run for AR7, 8 and 9.
What is the Budget for Sustainable Industry Rewards?
The government is working with stakeholders to build the business case for setting an appropriate budget for CfD Sustainable Industry Rewards.
Please can you confirm the dates of contracts being issued?
Contracts for Generators using Pot 1 technologies will be issued between 12-15 July. Contracts for Generators using technologies specified in Pots 2 and 3 will be issued between 15-19 July. If you have received confirmation of a successful CfD award and have not received a contract by the end of the relevant timeframe, please contact info@lowcarboncontracts.uk.
When will CfD notifications be issued? When will we know who the winners are?
On 7 July 2022, the Department for Business, Energy and Industrial Strategy published the full results of the fourth allocation round to coincide with National Grid ESO notifying applicants of the outcome.
What are the auction parameters for the next auction?
The overall budget for the fourth Contracts for Difference allocation round is £295m, comprising £10m for Pot 1, £75m for Pot 2 and £210m for offshore wind (Pot 3). Pot 2 includes a £24m minimum for floating offshore wind projects and a £20m minimum for tidal stream projects.
The £295m budget, confirmed on 20 May 2022, is a revision from the £285m budget announced in November 2021. The revised budget includes an extra £10m for Pot 3. Budgets and capacity limits for the other pots remain as set out in the Budget Notice published on 25 November 2021 (see below).
Pot 1 capacity will be capped at a maximum of 5,000MW. Within the pot, two separate maxima will be applied to onshore wind and solar PV technologies, each set at 3,500MW.
Applicable delivery years for this year's round differ across the three auction pots. Delivery years for Pot 1 will be 2023/24 and 2024/25. Delivery years for Pot 2 and Pot 3 will be 2025/26 and 2026/27.
For further details, please see the following documents:
- Budget Revision Notice (PDF, 185KB)
- Budget Notice (PDF, 233KB)
- Budget Notice accompanying note (PDF, 129KB)
- Administrative strike price methodology note (PDF, 483KB)
What changes is the government making to the CfD scheme for the fourth allocation round?
Government consulted between March and May 2020 on a number of changes to the CfD scheme to ensure it continues to support the increase in ambition needed to deliver the 2050 net zero target, whilst minimising costs to bill payers. The consultation response (PDF, 542KB) published in November 2020 sets out the government’s decisions on scheme changes to support these objectives. These are to:
- Introduce a new separate auction ‘pot’ for offshore wind projects in recognition of the falling costs of offshore wind and its strategic importance and long-term potential to deploy at scale to support the net zero target.
- Implement the 2019 manifesto commitment to enable floating offshore wind farms by introducing a separate definition and strike price for floating offshore wind within the scheme. Floating offshore wind will compete in Pot 2, along with other less-established technologies.
- Exclude new coal-to-biomass conversion projects from future allocation rounds as this was a transitional technology. Existing coal-to-biomass conversion projects currently supported by the CfD scheme are unaffected by this proposal, and their support will end in 2027 as planned.
- Update the 2014 Community Benefits and Engagement Guidance for onshore wind projects in England to ensure that local communities are effectively involved in the decision-making on such projects in their areas.
- Strengthen the supply chain plan process to align it more closely with the government’s wider industrial priorities and enable the UK to reap the benefits of investment in renewables. The updated process will increase the clarity, ambition and measurability of developers’ supply chain commitments, and ensure that those commitments are delivered.
We are also making several other adjustments to the scheme to improve its operation:
- Amending the definition of delivery years to allow us to set future delivery years up to 31st March 2035.
- Projects awarded future contracts will not be paid when ‘day ahead’ electricity market prices are negative, to provide better value for money for bill payers.
- A series of changes to auction design and the operation of the scheme, including the simplification of delivery years, to ensure that the scheme is better able to deliver the government’s ambitions on deployment and ensuring value for money.
- A series of changes to the CfD allocation regulations to improve their clarity for government, delivery bodies and industry.
Will Allocation Round 4 be the only opportunity for Pot 1 technologies commissioning in 2023/24 and 2024/25 to get a CfD?
For Allocation Round 4, 2023/24 and 2024/25 are the only delivery years for Pot 1 technologies, although this does not preclude non-CfD deployment.
The government is committed to continuing a high level of renewable deployment, with the CfD scheme being the government’s main mechanism for supporting new renewable electricity generation projects.
It is too early at this point to set out specific auction parameters and delivery years for the fifth allocation round; however, we will ensure that stakeholders are kept updated appropriately.
Where do I find the version of ‘The Contracts for Difference (Allocation) Regulations 2014 (as amended)’ applicable to Allocation Round 4?
If you look up the Contracts for Difference (Allocation) Regulations 2014 on legislation.gov.uk and select the ‘More Resources’ tab, you will find a list of changes affecting those regulations.
Can you confirm bid bonds will not be required for Allocation Round 4?
The government consulted on potential changes to the Non-Delivery Disincentive, including the possibility of introducing a requirement for bid bonds. Its response clarified that bid bonds will not be required for Allocation Round 4.
How have load factors in the Allocation Round 4 Allocation Framework been derived?
The load factors presented in the Allocation Round 4 Allocation Framework (PDF, 584KB) (Schedule 2, Appendix 3) have been derived using a methodology which is consistent with that used to derive load factors for use in calculating Administrative Strike Prices (ASPs). More detail on the approach is set out in the Allocation Round 4 ASP methodology note (PDF, 438KB).
However, unlike ASPs, which apply a central load factor estimate, the load factors published in the Allocation Framework (used in the valuation formula only) represent a high estimate.
This is in line with the approach taken in the previous round. Valuing projects using high estimated load factors reduces the risk that in-life spend exceeds spend forecasted at the point of allocation. If CfD-supported projects generate more than expected, the support costs paid by consumers will be larger than initially forecast.
When will the closing date for applications be?
We have now published our full indicative timeline which confirms that the application window closing date will be 14 January 2022.
This is longer than we have previously allowed due to the application window falling over the Christmas period.
When will AR4 open to applications?
We have now published our full indicative timeline which confirms that the round will open to applications on 13 December 2021.
Will there be any stakeholder events, and if so, when?
On 23 September 2021, the Contracts for Difference delivery partners hosted an online event to launch Allocation Round 4. Events have also been held in April, July and November 2021. Resources from these events may be found in the 'Past events' section of the events page.
Details of any further events will be added to the events page once confirmed.
What is the capacity cap for this year's round?
The final Budget Notice explains that a capacity cap of 5000MW will apply to Pot 1. We have not set a capacity cap in Pots 2 or 3.
Could the timeline dates change?
While the indicative dates for Allocation Round 4 are not immovable, it is unlikely that there will be any significant changes to them. However, if there are any changes, the relevant delivery partner will endeavour to give potential applicants advance notice and will update the microsite timeline.
What technologies will be eligible to compete in the next allocation round?
The auction will be open to all three current pots:
Plot 1
- Onshore Wind (>5MW)
- Solar Photovoltaic (PV) (>5MW)
- Energy from Waste with CHP
- Hydro (>5MW and <50MW)
- Landfill Gas
- Sewage Gas
Plot 2
- Remote Island Wind (>5MW)
- Floating Offshore Wind
- Wave
- Tidal Stream
- Advanced Conversion Technologies
- Anaerobic Digestion (>5MW)
- Dedicated Biomass with CHP
- Geothermal
Plot 3
- Offshore wind
Are there any new technologies for Allocation Round 4?
Floating offshore wind has been added as a new technology to Pot 2 for Allocation Round 4.
Do you have local content requirements?
No. The CfD application process does not include a requirement for developers to use UK content. The question that asks about levels of UK content in the unscored section of the questionnaire is asked for information purposes only.
How does the Supply Chain Plan process work for Floating Offshore Wind projects below 300MW?
Since the first CfD allocation round, developers of projects with a capacity of 300MW or more have had to apply for a Supply Chain Plan statement from the Secretary of State for Business, Energy and Industrial Strategy to take part in a CfD allocation round. From the fifth CfD allocation round, this requirement will also apply to all Floating Offshore Wind projects, regardless of their size, although subject to a bespoke Supply Chain Plan if the project is below 300MW. (Floating Offshore Wind projects above 300MW will still be required to complete the standard questionnaire.
The bespoke Floating Offshore Wind questionnaire contains fewer questions and fewer data reporting requirements. Some questions differ from those in the standard questionnaire, for example there is a question on collaboration in the industry.
The pass mark for the bespoke Floating Offshore Wind questionnaire will be 50%, as opposed to the standard questionnaire for which the pass mark has been raised from 50% to 60% ahead of Allocation Round 5.
Is the feedback session compulsory and how will they work?
The feedback sessions are voluntary and will take place after the SCP application has been submitted and an initial assessment undertaken.
The feedback session will provide Applicants with an opportunity to clarify any aspects of the SCP that BEIS finds unclear or vague, and to ensure that all answers have either measurable outcomes or a clear explanation of the desired outcome.
This could improve Applicants’ chances of submitting a successful application.
The feedback sessions will be based on the standardised published scoring criteria. A note of the feedback session will be agreed by the participants and form part of the formal feedback. The note will not be published.
What do I need to evidence to obtain a Supply Chain Plan Implementation Statement?
We have updated the Contracts for Difference (CfD) Allocation Round 5 Supply Chain Plan guidance on Gov.uk to include more information about the evidence required for a Supply Chain Implementation Statement application.
What if I disagree with BEIS’s assessment?
The aim of the monitoring meetings is to ensure that there are no surprises for either party relating to the implementation of commitments and the issuing of the Supply Chain Implementation Statement. Monitoring meetings are there to support the implementation of commitments, discuss any issues as they arise and agree on alternative approaches if necessary. The meetings will also agree what evidence is required to demonstrate a commitment has been fulfilled.
Once the CfD has been awarded, what happens if a developer does not then deliver on the Supply Chain Plan commitments they made?
Once a CfD has been awarded, a developer will be held accountable to the commitments they have made in their Supply Chain Plan, taking into account the level of ambition they committed to at the application stage. Therefore, a developer with a low-level of ambition in their original commitments will not score very highly overall, even if they have met all their commitments. Conversely, a developer who has set original commitments with a high level of ambition, but has not delivered on all of them, could still receive a high score.
If a developer has implemented their commitments and can obtain at least the 60% pass mark per section (50% for the bespoke Floating Offshore Wind questionnaire for projects lower than 300MW), then they will be on course to receive their Supply Chain Implementation Statement regardless of their performance on any individual question.
If a developer fails to implement enough of their commitments to meet the 60% pass mark in a section (regardless of their performance on any individual question), they could face termination of their CfD contract. Developers will be given multiple opportunities to discuss the implementation of their commitments, make adjustments or amend their plans at each stage of the process. These measures provide ample opportunities for developers to adjust their plans to secure a Supply Chain Implementation Statement.
How will an application for a Supply Chain Implementation Statement be assessed
BEIS will assess the evidence provided for each commitment made in a Supply Chain Plan (including amendments made during the monitoring process) and rescore the Supply Chain Plan similarly to the CfD application stage, taking into account the initial level of ambition committed to, to determine the extent to which the Generator has implemented or is on track to implement the commitments made. If a Generator over-delivers on a commitment, it is possible to receive a higher mark than originally awarded.
What happens if I fail my Supply Chain Plan application?
In the event that a Supply Chain Plan is rejected, BEIS will notify the Applicant of that rejection and will provide a written explanation of the reasons for the rejection and the further steps which may be available to the Applicant (a Statement of Rejection).
BEIS will consider revised Supply Chain Plans submitted in response to a Statement of Rejection. However, it is important to note that while BEIS will endeavour to notify Applicants as to whether or not their revised Supply Chain Plan has passed the assessment process before the Fifth CfD Allocation Round Application Window opens, no guarantee is made that BEIS will be able to do so. Applicants are strongly encouraged to submit revised Supply Chain Plans at the earliest opportunity following receipt of a Statement of Rejection.
Applicants can, if they wish, discuss their Supply Chain Plan with BEIS before resubmission. We have introduced voluntary feedback sessions that are intended to reduce the chances of an SCP application failing. The feedback sessions will provide Applicants with the opportunity to clarify any aspects of the SCP that BEIS finds unclear or vague.
What criteria you are using to assess Supply Chain Plans?
The Supply Chain Plan guidance and questionnaire sets out what is required of an Applicant to pass their Supply Chain Plan and the basis on which plans are assessed and scored.
Marks will be awarded based on the quality of information provided, specifically for the ambition, feasibility and quantifiable outcome/measurable metrics contained in the responses and supporting evidence, including how delivery will be ensured.
We have clearly shown the available marks next to each question to aid transparency and assist Applicants.
An Applicant whose Supply Chain Plan has failed will receive feedback on why it has failed and will be invited to submit a revised Supply Chain Plan for assessment.
Will the contracts have space for more than one signatory? Is this an option?
At this stage, we cannot automate the option to allow Generators to nominate two different people to sign the CfD. However, if this causes an issue for Generators, we ask that you contact us after receiving the link to sign the CfD contract. We can then amend that link to allow a second person to sign. It is essential that if you need to excise this option, you do not sign until we resend you the invitation, as we will then not be able to edit the signing envelope.
What are the ICPs?
LCCC held a webinar on Thursday 30th June. LCCC have also published a guidance document relating to the ICP process and a podcast outlining the Legal Opinion, both of which can be found here.
Who will the contract be sent to for signature? A director, or the main admin?
Contracts will be sent to the contact email provided to National Grid ESO in the CfD application. That person has the option of forwarding the invitation to sign if they are not the person with the necessary legal authority to sign.
What happens if I am awarded a CfD?
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. LCCC held a Webinar on contract production on Wednesday 15th June and the recording can be found here. 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.
How are CfD payments affected during negative pricing periods?
For projects that are awarded contracts in Allocation Round 4, CfD payments will not be made during periods where the intermittent market reference price is below £0/MWh.
If a project’s Target Commissioning Window was solely in the second delivery year, would it not be valued for the first delivery year, just the second year and two subsequent years?
Where a project’s Target Commissioning Window falls only in the second delivery year, then the application is valued only for the second year and subsequent (two) valuation years. It would therefore not be valued for the first delivery year.
Can all of your four flexible bids have different capacity and/or Target Dates to your application, or does at least one of your flexible bids have to have the same capacity and Target Dates as your application?
None of the sealed bids are required to have the same capacity or Target Dates as the application, so all four flexible bids may have different capacity and/or target dates, subject to Rule 11 of the Allocation Round 4 Allocation Framework (PDF, 584KB), which details the requirements for submission of sealed bids.
Rule 11.2 states that (subject to Rule 13), for each application, the applicant may submit only one sealed bid (and one strike price) for the same Target Commissioning Window Start Date and for the same capacity as specified in the original application.
Rule 11.6 states that:
All Flexible Bids made by the Applicant must—
(a) be made at different Strike Prices;
(b) subject to Rule 11.4, be expressed to be to the nearest £0.001;
(c) subject to Rule 12.2, have Target Dates that are no earlier than the Target Dates specified in the Original Application;
(d) subject to Rule 12.2, have a capacity that is no greater than the capacity specified in the Original Application; and
(e) satisfy Rule 4 and Rule 5 if applicable.
[The answer to this question has been updated to clarify prior ambiguity in published information, including in Rule 11.5 of the Allocation Framework, which may otherwise have been taken to require that one of the flexible bids must have the same capacity and/or Target Dates as the original application.]
A qualification requirement for application is a demonstration of applicable planning consents for works to enable the proposed CfD unit. Does this include planning consent for the grid/cable route to the Distribution Network Operator’s substation?
The requirements for applicable planning consents can be found under Regulation 23 of the Contracts for Difference (Allocation) Regulations 2014 (as amended). Regulation 23(2) states the applicant must provide copies of the applicable planning consents which apply to any works (“relevant works”) which enable –
(a) the relevant CfD unit to be established or altered;
(b) electricity generated from the relevant CfD unit to be supplied, as applicable, to –
(i) the national transmission system for Great Britain;
(ii) the distribution system; or
(iii) a private network.
Further, Regulation 23(4) specifies that “relevant works” includes the alteration, installation or removal of any cable, line, pipeline or other service media.
What is the Allocation Framework?
The Allocation Framework is a technical document that sets out the rules that will apply to a specific allocation round. It also sets out how applications will be considered against the eligibility requirements and includes a list of checks that the Electricity Market Reform Delivery Body (National Grid ESO) carries out when assessing CfD applications.
It is initially published in draft form to give industry and investors sight of the rules and auction parameters earlier than if we only published the final version.
The final version of the Allocation Round 4 Allocation Framework was published on 25 November 2021.
Where are the rules for the Non-Delivery Disincentive set out?
The Contracts for Difference (Allocation) Regulations 2014 (as amended) set out the details of the Non-Delivery Disincentive (NDD).
The government published a document in 2015, ‘Non-Delivery Disincentive for Contracts for Difference’, setting out how the NDD originally worked. The nature of the associated exclusion has changed since then, with consultations taking place in 2016 and 2020. The government responses to those consultations provide details of the amended policy in each case:
When does the obligation to deliver arise and what penalties do you face for not delivering? For example, what happens if you decide not to go ahead for whatever reasons?
An applicant that is offered a contract and does not sign triggers the Non-Delivery Disincentive (NDD) (a non-signature case under Regulation 14A(1)(a) of the Contracts for Difference (Allocation) Regulations 2014 (as amended)).
A signatory of a CfD is bound to meet the various delivery stages set out in the contract. Where they enter into a CfD which is subsequently terminated before the Milestone Delivery Date (18 months after signature) or as a failure to meet the milestone requirement, this also triggers the NDD (a non-delivery case under Regulation 14A(1)(b)).
In either case, the NDD bars them from applying in respect of a CfD unit at the same site in the next applicable allocation round (Regulation 14A(2)) (subject to exceptions detailed at Regulation 14A(4) and (5)).
Where will appeal guidance be published?
Ofgem published updated dispute resolution guidance on 22 October 2021, which is available via its website and this website.
In an interleaving loop, will bids from other generators trigger flexible bids or new interleaving loops?
Interleaving occurs when a bid breaches the budget and/or applicable capacity cap (when a hard constraint) and there are bids from the same applicant, whose bid caused a breach, present in the bid stack. In this scenario, the auction system looks for the next flexible bid from the same applicant and attempts to allocate it, along with any bids from other projects that lie between the flexible bid and the original breaching bid; this is known as the interleaving loop.
If any bids in the interleaving loop cannot be allocated, then interleaving is unsuccessful and the auction closes. If all the bids in the interleaving loop can be allocated, then interleaving is successful and the auction continues.
The interleaving bids process is described in full under Rule 17 of the Allocation Round 4 (AR4) Allocation Framework (PDF, 584KB), and examples of successful and unsuccessful interleaving can be found in this video of the valuation and allocation process breakout session delivered at the AR4 online launch event (recorded after the event).
Which date is used to do the value assessment within the delivery year?
The Target Commissioning Window Start Date is used within the valuation formula to calculate the budget impact and to calculate the year 1 factor.
An example of how the valuation formula is applied to applications can be found in this video of the valuation and allocation process breakout session delivered at the Allocation Round 4 (AR4) online launch event (recorded after the event). Further guidance is provided in Schedule 2 (Valuation Formula) of the AR4 Allocation Framework (PDF, 584KB).
On interleaving bids, would these apply for both a budget cap breach and a capacity breach?
In a pot auction, where a bid causes the monetary budget for that pot and/or the pot capacity cap to be breached, the interleaving rule is triggered, unless the bid also exceeds a maximum (in which case flexible bids are not considered). Where interleaving is triggered, the breaching application’s first flexible bid and any interleaving bids are considered in ascending price order to see if they all fit within the monetary and capacity budget. This is all set out in Rule 17 of the Allocation Round 4 Allocation Framework (PDF, 584KB).
In a minimum auction, flexible bids may be considered where a bid causes the monetary budget for that pot and/or the pot capacity cap to be breached, unless the bid also exceeds the minimum (in which case flexible bids are not considered). The interleaving rule does not operate in minimum auctions. This is set out in Rule 16.
What are the rules around the capacity you can put in your application and the MW capacity in your grid agreement? How much of a difference is allowed between the two values? Is this the same for all technologies?
A reference to capacity means the Initial Installed Capacity Estimate (IICE). In accordance with Schedule 5 of the Allocation Round 4 Allocation Framework (PDF, 584KB), the MW capacity in the connection agreement must be at least 75% of the IICE of the CfD unit. Schedule 5 is applicable to all technologies, unless otherwise stated.
Would being pre-qualified for the Capacity Market (CM) be considered being in receipt of subsidy and, therefore, ineligible? Or would you need to have a CM Obligation?
If an application is prequalified in the CM and an application is made to the CfD, it will be ineligible (unless or until a determination is made that the CM application is unsuccessful). This is based on Regulation 14(10)(c) and the interpretation offered in Regulation 14(10A) of the Contracts for Difference (Allocation) Regulations 2014 (as amended).
The Administrative Strike Prices for some technologies are higher than others – does that put those technologies at a disadvantage in the competitive auction?
Where an auction is held, it is intended to be a competitive process, incentivising cost-effective projects to come forward, and balancing delivery of our decarbonisation commitments with potential impacts on consumer bills. More detail on the principles behind setting Administrative Strike Prices (ASPs) can be found in the Allocation Round 4 ASP methodology note (PDF, 438KB).
ASPs by technology are based on the Department for Business, Energy and Industrial Strategy (BEIS)’s view of potential project costs and future revenues, but BEIS does not have full information on individual projects and their associated costs. It is for individual developers to determine the price they are comfortable bidding at, based on their own assessment of potential future costs and revenues.
Is the intention that only one maximum can be reached given they are both set at 3.5GW and the pot capacity cap is at 5GW?
The intention is that neither solar nor onshore wind can win contracts for more than 3.5GW of capacity in Pot 1. The exact ratio of these and other technologies among successful applications will depend on prices bid. It is possible that either solar or onshore wind may secure their full maximum capacity allowed but not both. It is also possible that neither technology will reach its maximum.
How do the separate clearing prices for maxima work?
Rule 17.4(d) of the Allocation Round 4 (AR4) Allocation Framework (PDF, 584KB) sets out how separate clearing prices apply to maxima. In short, each maximum has its own clearing price, separate to the clearing price of the pot. These operate in the same way, whether a maximum is breached within an auction or not.
An application subject to a maximum can only have its clearing price raised by a bid from another application subject to that same maximum. Conversely, a maximum bid can only raise the clearing price of other lower bids subject to that same maximum and any lower bids of technologies not subject to any maximum.
For AR4, this means that an onshore wind application cannot raise the clearing price of a solar application, and vice versa. It also means that no other technology can raise the clearing price of either solar or onshore wind to a higher price.
How are maxima considered in a pot auction?
Rule 17 of the Allocation Round 4 (AR4) Allocation Framework (PDF, 584KB) sets out how pot auctions are run, including the treatment of bids subject to maxima.
In a pot auction, all bids are considered in ascending price order (without giving priority to any technology) to see if a maximum, capacity cap or the monetary budget for the pot is exceeded. Where a bid results in a maximum being exceeded, that application is unsuccessful (no flexible bids are considered) and that maximum closes so that no higher-priced bids subject to that maximum are considered.
Where a maximum bid does not exceed its maximum limit but does result in the pot capacity cap or the monetary budget for the pot being breached, flexible bids may be considered. If such a flexible bid is successful without breaching the maximum, the auction will continue and the maximum will not close. It is possible in AR4 that the 5GW capacity cap could be breached before either of the 3.5GW maxima (for solar and onshore wind) were breached and certain that the capacity cap would be breached before both maxima could be breached given that the two maximum limits sum to more than the pot capacity cap.
How would different maximum-only auctions relate to each other?
Maximum-only auctions are held independently of each other, so what happens in one maximum-only auction cannot affect what happens in another.
In Allocation Round 4, the two maxima are both set at 3.5GW, but there is a 5GW capacity cap across all technologies in Pot 1. This means that two maximum-only auctions cannot take place this round, because for both maxima to be exceeded, the capacity cap would also be exceeded, which would result in consideration of maxima in a pot auction and not in maximum-only auctions.
How would a maximum-only auction work?
Rule 18 of the Allocation Round 4 Allocation Framework (PDF, 584KB) sets out how maximum-only auctions are run. In a maximum-only auction, bids are considered in ascending price order until the maximum is breached. When the maximum is breached, the breaching bid is unsuccessful (no flexible bids are considered) and the maximum-only auction closes (no further applications subject to that maximum are considered in any auction).
When would a maximum-only auction happen and how is that decided?
Rule 9 of the Allocation Round 4 (AR4) Allocation Framework (PDF, 548KB) sets out how the Delivery Body (National Grid ESO) determines which auctions it must hold and Rule 9.6 specifies which auction will take place in relation to maxima.
The Delivery Body values all qualifying applications at their Administrative Strike Price (ASP) to determine which auctions need to take place. A maximum-only auction only happens when: (1) all applications of all technologies can be accommodated within the monetary budget and without breaching any capacity cap, but (2) the applications that are subject to that maximum would exceed the maximum.
In AR4, this means that a maximum-only auction would only he held where all the qualifying applications from all technologies in Pot 1 could be accommodated at their ASP, but either the solar applications or the onshore wind applications exceeded their respective maxima. If the sum of all qualifying Pot 1 applications would exceed the monetary budget for that pot and/or breach the capacity cap, then a Pot 1 auction is held for all technologies in that pot and the maxima would be considered as part of that auction.
What are the grounds for which a generator can apply for an exemption from a temporary site exclusion?
There are several grounds for which the Secretary of State may grant an exemption certificate to an eligible generator. These are listed in full in regulation 14B of the Contracts for Difference (Allocation) Regulations 2014 (as amended).
How do you know which sites are excluded?
The Low Carbon Contracts Company must maintain a register of every site that a temporary site exclusion applies to. The register showing the current excluded sites can be found here: https://www.lowcarboncontracts.uk/resources/registers/register-of-temporary-site-exclusion/
Why do sites receive temporary site exclusions?
A temporary site exclusion is a function of the Non-Delivery Disincentive, which aims to incentivise applications to be made only by projects likely to be delivered, and therefore ensures that projects that are awarded a contract in a Contracts for Difference (CfD) allocation round are incentivised to sign that contract and to make their best efforts to meet the milestone requirements.
An exclusion applies to the site of a project that was awarded a CfD but where (i) the applicant in respect of that project failed to sign, or (ii) the CfD was terminated prior to, or due to a failure by the project to meet the milestone requirements by its Milestone Delivery Date. As a result of being excluded, such sites would not be eligible to apply to the next CfD round.
What happens after I sign a CfD?
After the successful applicants sign a contract with the Low Carbon Contracts Company (LCCC) and have passed the Initial Conditions Precedent, they need to work towards meeting the Milestone Requirement, which requires them to demonstrate their commitment to the project within 18 months of signing the CfD. As a minimum, a generator needs to prove that they have either: a) spent 10% or more of the total project pre-commissioning costs on the project or b) met the Project Commitments set out in the CfD.
The CfD also requires the generator to provide the LCCC with monthly progress reports towards their Estimated Start Date. The LCCC is required by regulation to publish updated Estimated Start Dates on a quarterly basis in the CfD register. The LCCC has the right to terminate the contract if the generator fails to meet the Milestone Requirement or, subsequently, if the generator fails to commission 80% of the installed capacity by the Longstop Date.
Have any technologies been removed from the list of eligible technologies?
Biomass conversions have been removed from the scheme as an eligible technology from Allocation Round 4 onwards.
What is a Contract for Difference (CfD)?
Contracts for Difference (CfDs) are the government’s main mechanism for supporting low-carbon electricity-generating projects whilst minimising costs to bill payers. CfDs are designed to attract new sources of finance and reduce the cost of capital by providing generators with future price revenue certainty in exchange for them bearing development and construction risks.
CfDs are private law contracts between a generator and the Low Carbon Contracts Company, in a standard template form published by the Department for Business, Energy and Industrial Strategy. The template CfD is divided into two parts: the front-end agreement (the ‘CfD Agreement’), into which the project-specific details and variables determined by the allocation process are inserted (e.g., generator’s name, facility description, installed capacity, strike price), and the standard terms and conditions (the ‘Standard Terms’), which apply to all projects.
Once the project has satisfied all the Operational Conditions Precedents, the generator will be paid the difference between the ‘strike price’ and the ‘reference price’ for the electricity they produce over the course of the contract. The strike price is a price for electricity in £/MWh determined through a sealed-bid process during the allocation round and, therefore, should reflect the cost of investing in a particular low-carbon technology. The reference prices used (either Baseload or Intermittent, depending on the technology) represent the average market price for electricity at the relevant point in time.
How is the cost of CfDs met?
The cost of CfDs is ultimately met by electricity consumers via the CfD Supplier Obligation and the Operational Costs, which are levies imposed on all active GB electricity suppliers in accordance with The Contracts for Difference (Electricity Supplier Obligations) Regulations 2014, as amended.
For more information on how the levy is managed, visit the Low Carbon Contract Company’s Transparency Tool, available at: https://www.lowcarboncontracts.uk/resources (opens in new window).
Why are you making these changes?
These changes are necessary to ensure that the CfD scheme continues to deliver low-carbon electricity at best value for bill payers and focuses subsidy on high-quality projects in order to drive innovation and bring down the cost of energy in the long term.
They will also enable the CfD scheme to play a key role in delivering on the prime minister’s ambition, announced on 6th October 2020, to accelerate the UK’s progress towards net zero emissions while making the UK a world leader in clean wind energy.
What is the impact of NESO’s Grid Connection Reform programme on CfD Contracts?
In response to questions regarding the impact of the NESO Grid Connection Reform programme on CfD contracts, LCCC would like to clarify how such an event will be treated under the contract.
As the CfD Counterparty, LCCC considers that where NESO moves a project’s grid connection date as a result of the NESO Grid Connection Reform programme and that causes a delay to the project, such event is capable of constituting a grid delay for the purposes of the CfD.
This means that generators will be able to apply for extensions to any contractual dates impacted by their connection date moving provided they can demonstrate delay to their project. However, any such application for contractual relief will still need to satisfy all the relevant contractual requirements, including the Generator and its Representatives using reasonable endeavours to mitigate the effects of such delay.