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.
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).
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.
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).
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.
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.
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.
Why not extend to 20 years for geothermal too?
Our evidence of strike prices reductions is strongest for OFW, ONW and solar, and these are also the technologies which have significant enough capacity in the pipeline to realise the benefits to consumers. We will reassess the case to increase the contract term for other CfD technologies in future rounds subject to evidence of strike price reductions, and scale to deliver sufficient benefits for consumers.
How will tiebreaks work for projects that do not clear in the auction when the SoS is evaluating a budget revision?
Tie-breaker rules will apply in the same way as before.
How will locational clearing prices work for offshore wind projects? i.e. an English project can't clear upwards a Scottish project?
We will apply maxima in pot 3 to separate the clearing price of Scottish offshore wind projects from that of other offshore wind projects in Great Britain. Without this change, a large difference in transmission charges faced by Scottish generators compared to the rest of Great Britain could result in significant overcompensation for some offshore wind projects in AR7. Projects will be grouped based on the network charging zone they connect in. More details can be found in the Contract Allocation Framework.
Projects will still compete against each other on price, with bids ranked from cheapest to most expensive. However, any successful bid from either category, i.e. Offshore Wind Scotland or Offshore Wind, will only be cleared up to the most expensive successful bid from the same category.
The maxima will be published in the contract budget notice later this year.
How will the Government set the budget now reference prices and load factors have changed? Does the ASP being increased mean the Government will offset this increase with a decrease in the final budget?
Government will set budgets at a level that balances competing objectives, including but not limited to ensuring auctions are competitive and deliver value for money for consumers, whilst supporting deployment to enable sufficient progress towards our decarbonisation commitments. When setting budgets, they will be calculated as per the parameters set out in the Allocation Framework.
Will the Secretary of State have no discretion on any of the technologies that come through in AR7A, will it come down purely to price?
The Secretary of State will only view anonymised bid information for fixed bottom offshore wind. He will not view anonymised bid information for floating offshore wind or any other technologies in AR7a.
Does the intention to separate clearing prices for Scottish and English offshore wind apply to both fixed AND floating offshore wind?
No, the separate clearing prices only apply to fixed-bottom offshore wind for AR7.
When will applicants be informed of their successful capacity and final strike price?
In AR7 the qualification window runs between 28 August and 26 September. Applicants will be informed on whether their applications are eligible and qualify for participation in AR7 at the end of September. Depending on the appeals process, applicants will then proceed to the auction where they will have to submit their bids. At the conclusion of the allocation process, participants will be informed by NESO of their final clearing price. The timings of the allocation process are on the CfD microsite.
For a phased offshore wind bid; does the total capacity per Delivery/Valuation Year get valued for Budget purposes; or total capacity of the project? i.e. if project split over 3 seasons and 3 Delivery Years.
For phased projects, the capacity of each phase is valued in the year it is expected to commission and all subsequent delivery years and valuation years. These phases are evaluated along with all other projects in the bid-stack, with the auction closing when the total budget impact in any given delivery year or valuation year breaches the total budget.
Is there a bid stack scenario where Max 1 consumes the entire Pot budget without any allocation in Max 2?
We are not setting maxima in pot 3 to constrain outcomes. The purpose is only to separate the clearing price of Scottish offshore wind projects from that of other offshore wind projects in Great Britain. Bids will still be ranked from cheapest to most expensive, with contracts awarded in price merit order, constrained by the budget.
In theory, where two maxima apply, bids from only one maximum could be successful if they were the cheapest before the budget was breached.
Is the sealed bid price to be expressed in 1st April 2024 pricing terms or still in 2012 terms?
Sealed bids are to be expressed in 2024 pricing terms. The CfD Agreement (and all contract variants) have been amended to confirm that the Base Year for AR7/7a is 2024.
Please clarity if the SOS has the ability to amend the Pot 3 budget following the closure of the sealed bid window? Does this also include being able to amend the Maxima?
The Secretary of State has the ability to review anonymised bid information of all projects that breach the published budget. If the budget were to be amended, then the Secretary of State would have to follow the Contract Budget Revision rules in the CfD Allocation Regulations 2014, which covers Maxima. The budget for fixed-bottom offshore wind will only be revised if it represents good value for consumers.
When will we know which technologies will get a minima and maxima for AR7?
Further parameter details will be confirmed later this year in the Contract Budget Notice.
Is my understanding correct that the contract budget notice will be announced in the period between "Qualification results" and "Sealed bid Open"?
Please see the timetables on the CfD microsite for dates on when the Contract Budget Notice will be published.
With the separate maxima for Scottish offshore wind and other offshore wind, is it expected that the maxima will be set at the same value as the overall budget for pot 3, as was the case for permitted reduction vs regular projects in AR6? Or will there be
Maxima are only being used to separate clearing prices between Scottish offshore wind projects and other offshore wind projects in Great Britain, not to constrain outcomes. Maxima details will be confirmed in the contract budget notice later this year.
Does the Secretary of State have visibility of bids for solar as well?
No, the Secretary of State only has visibility of anonymised bids for fixed-bottom offshore wind in AR7.
Will Hydropower still be able to enter the auction, given their ASP is much higher than other technologies?
Yes, hydropower is an eligible technology for the CfD and can apply to enter AR7a. The ASP reflects the maximum strike price that could be awarded to a technology.
If a developer pulls out of a CfD and then sells the project to a new developer, will the newer developer also be bound by the non-delivery disincentive (i.e. does the NDD attach to the developer or the site)?
Yes, the exclusion applies to the site on which the applicant/generator had intended to construct and operate the CfD generating station. The new owner may apply to the Secretary of State for an exemption to enter a proportion of the excluded site into an allocation round before the two-round exclusion has expired, but there is no guarantee this will be granted
What is the start date of each delivery year - the 1st of April?
Yes, the start date of each delivery year begins on 1 April and ends on 31 March.
The reference prices are significantly lower in the valuation year as compared to the delivery year impacting the overall budget utilisation. Can you confirm that the budget breach in any of the years will close the auction and that the reference price in
The budget impact of a project is estimated in the delivery year in which it applies and all subsequent valuation years. This is considered along with all other projects in the bid-stack, with the auction closing when the total budget impact in any given delivery year or valuation year breaches the total pot budget.
Does the NDD apply for the next two allocation rounds following the date when generator fails to meet the MDD? For example, if an AR7 project fails to meet the MDD does the project gets a ban for AR8 & AR9 or AR10 & AR11
The exclusion would be for the next two allocation rounds following the contract termination. For example, if the contract is terminated after the AR8 application window has closed, the exclusion would apply to AR9 and AR10.
What are the applicable AR7 delivery years?
- Pot 1 (including solar and onshore wind): 2027/28 and 2028/29
- Pot 2 (including geothermal and tidal): 2028/29 and 2029/30
- Pot 3 (fixed-bottom offshore wind): 2028/29, 2029/30 and 2030/31
- Pot 4 (floating offshore wind): 2028/29 and 2029/30
Why are you providing offshore wind with an extra delivery year in AR7?
We recognise the severe supply chain pressures and longer project lead-in times experienced by this sector. An additional delivery year is intended to smooth out delivery and help ensure the supply chain has capacity to deliver all the projects necessary for meeting the 2030 target.
What maxima will apply regarding locational clearing prices for AR7?
We will apply maxima in pot 3 to separate the clearing price of Scottish offshore wind projects from that of other offshore wind projects in Great Britain.
This is to reduce the risk that annual fluctuations in distribution and transmission network charges can result in overcompensation for generating stations.
Projects will be grouped based on the network charging zone they connect in. More details can be found in the contract allocation framework.
When are you going to publish the budget and maxima/minima for AR7?
These will be published before the AR7 sealed bid windows open. The timings can be found in the AR7 timetable.
What impact will the round have on consumer bills?
- It is vital that CfDs offer value for money to consumers and continue to deliver low prices, which is why auctions are designed to keep the allocation process highly competitive.
- It is impossible to provide the precise impact on consumer bills as these will be highly dependent on factors including household use, international gas prices, and future wholesale electricity prices, which remain uncertain.
- However, the CfD scheme is vital to the UK achieving its mission of becoming a clean energy superpower, which will help bring energy bills for good
What is the purpose of grouping technologies into pots?
- Technologies are grouped into ‘pots’ on the basis of price competitiveness and pipelines.
- Technologies only compete with projects in the same pot, with each pot setting its own auction clearing price (and separate ASPs capping each technology).
Why is FLOW in its own pot for AR7?
- FLOW and Offshore Wind (OFW) need to run to the same timeline in AR7 for technical reasons (because the Clean Industry Bonus already defines AR7 as containing both OFW and FLOW).
- Therefore, FLOW could not be grouped with the other technologies in Pot 2 as it needs to run to a different timeline
Why are you letting some projects deliver beyond the 2030 target?
- Delivery years run from April to March – so OFW developers should aim to commission by March 2031.
- We are confident this change will not delay projects from deploying, as developers are incentivised to commission as soon as possible to begin generating revenue.