Allocation Round 5 Budget Confirmed

The budget is set to help support effective competition in the CfD auction with the aim of delivering low carbon electricity deployment at low-cost to the consumer and supporting investment in emerging technologies. The budget decision reflects the anticipated firm pipeline of eligible projects at that time.

After the application window has closed, National Grid ESO will assess applications and give the Department for Energy Security and Net Zero the total value of eligible applications. This is when the Secretary of State can consider whether to increase the budget.

The Allocation Round 5 (AR5) application window will run from 30th March – 24th April 2023.

This is the first CfD round to be held annually, instead of every two years. The move to annual auctions was in response to industry demands for more frequent auctions and greater visibility of the pipeline and investment horizon.

Key Budget Details:

The budget available in the AR5 auction for Pot 1 (established technologies) will be £170m and for Pot 2 (emerging technologies) the budget available will be £35m.

The Pot 2 budget is inclusive of a minimum ringfence of £10m for Tidal Stream projects. This results in a total budget for the auction of £205m.

Budgets are presented in 2011/2012 prices in line with the Control for Low Carbon Levies. These figures are an estimate of annual support in the most expensive year in the first five (Pot 1) or four (Pot 2) 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.

Other statutory notices

Alongside the Budget Notice, the government has published other statutory notices relating to AR5.

These are:

• Allocation Round Notice -This notice confirms that the CfD application window for AR5 will open on 30th March 2023 and close on 24th April 2023.
• Standard Terms Notice – This notice sets out the information that must be used by the CfD counterparty, the Low Carbon Contracts Company (LCCC), to complete the appropriate Standard Terms (CfD contract), which is individualised for each successful project.
• Counterparty Costs Notice – CfD applicants may apply to LCCC to request ‘minor and necessary’ modifications to the CfD contract. This notice sets out the threshold above which the costs likely to be incurred by LCCC as a result of any modification would not be considered ‘minor’.
• Allocation Framework Notice– This notice sets out the applicable Allocation Framework for AR5 (see below).

Allocation Framework:

The final Allocation Framework for AR5 has been published on 16th March 2023. This document sets out the rules for the round and the eligibility requirements that applicants must satisfy.

Consultation response and final contract documents

The Government has also published other key documents for AR5 and a response to the consultation on AR5 contract changes.

The changes to the AR5 contract include changes to prevent generators from delaying their CfD Start Date for their commercial gain, at the expense of consumers, by avoiding CfD payments to LCCC at times of high electricity prices.

From AR5, the generator’s CfD Start Date must be no later than 10 business days after the Start Date Notice is issued following the completion of the operational condition precedents (OCPs).The intention of this change is to ensure that generators that have met the OCP requirements should commence the CfD contract within a short period.

We have also added a provision to allow LCCC, where appropriate, to issue a Unilateral Commercial Operations Notice (UCON) to the generator if they deem that commercial operations have begun. Such a notice would be effective for determining that the Start Date Notice should be issued but would not remove the obligation on generators to fulfil any remaining OCPs.

Read the full consultation response here

In conjunction with the consultation response, the government has published final versions of the contract documents for AR5, comprising the Standard Terms and Conditions, the generic CfD Agreement and contract variants.