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June 2013
Electricity Market Reform: Delivering UK Investment
Electricity Market Reform: Delivering UK Investment
Presented to Parliament by the Secretary of State for Energy and Climate Change
by Command of Her Majesty
June 2013
Cm 8674 £6.25
http://www.nationalarchives.gov.uk/doc/open-government- licence/ or e-mail: [email protected]. Where we have identified any third party copyright information you will need to obtain permission from the copyright holders concerned. Any enquiries regarding this publication should be sent to us at [email protected] You can download this publication from https://www.gov.uk/government/publications/electricity-market-reform-684
© Crown copyright 2013 You may re-use this information (excluding logos) free of charge in any format or medium, under the terms of the Open Government Licence. To view this licence, visit http://www.nationalarchives.gov.uk/doc/open-government-licence/ or e-mail: [email protected]. Where we have identified any third party copyright information you will need to obtain permission from the copyright holders concerned. Any enquiries regarding this publication should be sent to us at [email protected] You can download this publication from https://www.gov.uk/government/publications/electricity-market-reform-
ISBN: 9780101867429 Printed in the UK by The Stationery Office Limited on behalf of the Controller of Her Majesty’s Stationery Office ID P002571270 06/13 Printed on paper containing 75% recycled fibre content minimum.
delivering-uk-investment.
Electricity Market Reform: Delivering UK Investment
5
Contents
Introduction ................................................................................................................................................ 6
Delivering UK Investment .......................................................................................................................... 6
Ensuring reliable electricity supplies for consumers ................................................................................... 6
Tackling climate change through investment in low-carbon generation ..................................................... 7
CfD strike prices ..................................................................................................................................... 7
CfD contract terms: decisions on approach ............................................................................................ 8
Building the UK supply chain .................................................................................................................. 8
Supporting early renewables projects ..................................................................................................... 8
Trading renewable electricity: Government response to call for evidence .............................................. 9
Keeping electricity bills down and protecting the consumer ................................................................... 9
Next Steps ................................................................................................................................................. 10
Devolution ................................................................................................................................................. 10
APPENDIX A: Levy Control Framework and Draft CfD Strike Prices .................................................. 12
APPENDIX B: Policy on CfD Terms ........................................................................................................ 15
Electricity Market Reform: Delivering UK Investment
6
Introduction 1. Electricity Market Reform (EMR) will deliver the greener energy and reliable supplies that the
country needs, at the lowest possible cost. It will transform the UK electricity sector to one where low-carbon can compete with conventional, fossil-fuel generation – ensuring we build the right mix of generation for the long-term.
2. Around a fifth of our power stations are due to close over the coming decade and consumers are facing rising energy costs due to growing dependence on uncertain supplies of imported fossil fuels, so now is the time to move towards a diverse and low-carbon electricity mix.
3. This presents a huge opportunity for growth and jobs, with EMR designed to unlock up to £110 billion investment in our electricity infrastructure and support up to 250,000 jobs during this decade alone. The electricity sector is one of the biggest areas in the UK economy for investment over this decade and the Government is keen to support industry to maximise this potential. This is why we have brought forward the key announcements that will give industry the early certainty they need on EMR to begin planning major capital investments in the UK and its supply chain.
Delivering UK Investment
Ensuring reliable electricity supplies for consumers
4. The country faces increasing risks to providing secure and reliable electricity supplies. New capacity is needed to replace retiring coal, nuclear and older gas power stations – which have historically provided us with significant amounts of predictable and flexible generation. It is therefore crucial that we deliver new investment, and that the market brings this forward in a world where we move to a more diverse portfolio of generation such as new nuclear power, onshore and offshore wind, and gas. The amount of gas capacity we will need to call on at times of peak demand will remain high, with potentially significant amounts of new gas generating capacity required by 2030. Other forms of capacity – such as demand side response1 – also have significant potential to ensure we continue to enjoy secure supplies.
5. This is why the Government has today set out further details about the proposed Capacity Market – including how and when it will run – which will provide steady payments to incentivise a range of reliable forms of capacity such as gas-fired generation and demand-side response. In particular we are announcing to investors that, subject to state aid approval, we will run the first capacity auction in 2014 which will result in construction of new capacity that will be available from 2018/19. We are also continuing to explore how projects that result in permanent reductions in electricity demand can participate in the Capacity Market and the Government has announced that funding will be available for a pilot.
6. Further detail on this and the detailed design of the Capacity Market has been published today2, along with announcements from Ofgem and National Grid on future electricity
1 Where large electricity users reschedule or temporarily reduce their demand for electricity. 2 https://www.gov.uk/government/publications/electricity-market-reform-capacity-market-proposals
Electricity Market Reform: Delivering UK Investment
7
margins (including measures to address potential short and medium-term risks, ahead of the Capacity Market delivering new reliable capacity towards the end of this decade).
Tackling climate change through investment in low-carbon generation
7. To bring forward the billions of pounds of investment needed in new, low-carbon electricity generation and associated network infrastructure, the Government is publishing key information on Contracts for Difference (CfDs).
8. CfDs provide efficient and long term support for low carbon generation – including nuclear, renewables and carbon capture and storage – reducing risks faced by generators by increasing revenue certainty and through the backing of a long-term contract. Generators will receive revenue from selling their electricity into the market as usual, but will also receive a top-up to a pre-agreed ‘strike price’. Conversely, if the market price is higher than the strike price then the generator must pay back the difference, which reduces costs to consumers when electricity prices are high.
9. The CfD reduces costs to developers of financing a project, by reducing exposure to volatile wholesale prices and reducing project risks. It also provides investors with a familiar legal framework by establishing a CfD as a private law contract, with a single Government-owned counterparty that can raise money from electricity suppliers.
10. For CfDs to deliver their huge potential for growth, developers and investors need to know the strike prices and key contract terms that affect risk and value – such as contract length, change in law protection and inflation indexation. This will support timely investment decisions and allow developers to make financial commitments which will deliver benefits across the UK and to local supply chains. Announcements on these crucial areas are set out below, along with other important updates.
CfD strike prices
11. We have today published the draft strike prices for renewables technologies that help achieve the Government’s objectives on renewables and low-carbon generation. They enable a technology mix that is value for money for consumers, along with the upper limits on annual spending on low-carbon generation (including CfDs, the Renewables Obligation and the small scale Feed-in Tariff) as agreed in the Levy Control Framework3. The draft strike prices are set out in Appendix A and are informed by analysis from National Grid, who assessed the impact of different strike prices on the Government’s objectives of tackling climate change, ensuring security of supply and minimising costs to consumers.
12. The strike prices for key technologies come down over time showing that as technology costs come down, consumers will be paying less. These strike prices are set to be consistent with the Renewables Obligation4 levels of support (though adjusted down as the CfD protects the investor against additional risks), allowing continuity and continued investment in the renewable energy industry. They will enable over 30% of Britain’s electricity to come from renewable energy sources by 2020.
13. A Panel of Technical Experts was appointed to scrutinise National Grid’s analysis and its report will be published in July, alongside consultation on the draft EMR Delivery Plan which
3 The mechanisms and headroom arrangements underpinning the Levy Control Framework remain unchanged. 4 The existing support scheme for large-scale renewable generation.
Electricity Market Reform: Delivering UK Investment
8
will set out more detailed information on the draft strike prices. The Panel was appointed in February 20135. Since then, the Panel has been working alongside National Grid and reporting informally to DECC throughout the analytical process to enable them to scrutinise the analysis.
14. The conversion from the level of support under the Renewables Obligation into a CfD price takes into account a number of elements. This includes the current projections for wholesale prices; the level of support being for 15 years as opposed to 20 years (except in certain cases such as biomass conversion); the indexation to the Consumer Price Index (as opposed to the Retail Price Index); Power Purchase Agreement terms; the effective tax rate of an average developer; and the lower cost of capital as a result of the increased price certainty afforded by the CfD.
CfD contract terms: decisions on approach
15. We have worked with developers and investors on the design of the CfD, to ensure it provides a robust legal framework against which to secure investment in the UK. Today we are publishing, at Appendix B, our approach to the key terms which will form the basis for the final CfD contracts, the drafting of which will be discussed with stakeholders over the summer.
16. As well as providing the necessary safeguards and assurances for industry – such as protections against changes in law that target a particular project or technology – the contract will provide value for money for consumers by reducing the overall costs of attracting investment and by including provisions to ensure the timely construction of low-carbon generation.
Building the UK supply chain
17. The Government has been working with industry to produce three outward facing Energy Industrial Strategies. These will ensure innovative and cost competitive supply chains are able to develop in time to serve growing parts of the energy industry, and will ensure that the UK sees a wider economic benefit associated with the investment coming forward in the electricity sector – building on consumer support for low carbon technologies.
18. The nuclear and oil and gas industrial strategies have been published6, and we will publish the offshore wind industrial strategy in mid-July. The Government is looking to developers to engage proactively with the supply chain, and where possible design their projects in a manner that supports the development of a sustainable and competitive supply chain, with potential to reduce costs in the medium/long term.
Supporting early renewables projects
19. To facilitate support for early renewables projects, we have today published a second update on the Final Investment Decision Enabling for Renewables project7. This signals the start of
5 Details of the Panel members and their terms of reference are available at: https://www.gov.uk/government/news/new-appointments-announced-to-decc 6 https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/175480/bis-13-748-uk-oil-and-gas-industrial-strategy.pdf https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/168048/bis-13-627-nuclear-industrial-strategy-the-uks-nuclear-future.pdf 7 https://www.gov.uk/government/publications/increasing-certainty-for-investors-in-renewable-electricity-final-investment-decision-enabling-for-renewables
Electricity Market Reform: Delivering UK Investment
9
the process for renewable electricity developers experiencing investment hiatus to apply for Investment Contracts (an early form of CfD). It sets out the process and indicative timetable for developers to apply for Investment Contracts, as well as details of the evaluation criteria which they will be assessed against.
Trading renewable electricity: Government response to call for evidence
20. The Government is looking at how to enable industry to export renewable electricity out of the UK, as well as enabling it to be imported from qualifying generators. A Call for Evidence was launched in April 2012 and our response to this has now been published on DECC’s website8. This:
recognises that importing electricity could be an attractive opportunity with much potential;
confirms that Government is minded to take up some level of physical trading so long as it can be made to work; and
outlines the further actions it is taking in order to overcome barriers to trade in renewable energy.
21. Final decisions will be announced at the end of the year.
Keeping electricity bills down and protecting the consumer
22. Electricity Market Reform is good for the consumer. As well as reducing the exposure to volatile and rising fossil fuel prices, the CfD ensures that generators pay back when the price of electricity goes too high; this makes it more efficient at delivering low-carbon generation. CfDs will make it cheaper to deliver low-carbon generation by around £5 billion up to 20309 because they will deliver cost of capital reductions that cannot be achieved through existing policy instruments. The wider benefits of CfDs will be considered in the next revision of the EMR Impact Assessment (as set out below).
23. The most recent Impact Assessment10 estimated average annual household electricity bills to be 6-8% (£38 – £53) lower over the period 2016 to 2030 under EMR, compared to decarbonising through existing policy instruments. Our analysis is being updated to take into account the draft strike prices published in this document, including the price and bill savings for different types of consumer, and a further Impact Assessment will be published alongside the draft EMR Delivery Plan in July.
24. The overall support will reduce over time, as reflected by the draft strike prices (see Appendix A), to take into account the cost reductions we expect to see as a technology becomes more mature. This will ensure that support is targeted only where it helps a technology to become competitive, and maximises value for consumers.
8 https://www.gov.uk/government/publications/response-to-call-for-evidence-on-renewable-energy-trading 9 This captures the impact of a reduced cost of capital under CfDs. Net Present Value up to 2030 (in 2012 prices). 10 https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/197904/cfd_ia_may_update.pdf
Electricity Market Reform: Delivering UK Investment
10
Next Steps 25. Over the coming months we will continue to work with developers and other stakeholders on
the development of Electricity Market Reform. We will publish the draft EMR Delivery Plan for consultation in July, including information on the methodology and analysis behind the draft CfD strike prices, as well as the proposed draft reliability standard which will inform the level of capacity to contract through the Capacity Market. A ten-week consultation will begin following the publication of that document.
26. We will engage with stakeholders through a number of workshops to be held over the summer during the consultation period – details of which will be published on DECC’s website. These interactive sessions will be held to explain the way we have arrived at our proposed strike prices in more detail and provide an opportunity for stakeholders to ask questions before finalising any written responses they may wish to make to the consultation.
27. Final strike prices will be set in December 2013 (subject to state aid and Royal Assent of the Energy Bill). We will also confirm the level of the reliability standard for the Capacity Market at this point.
28. We will publish further detail on the CfD contract terms in early August, including draft contract terms for all the key terms which go to the value of the CfD contract. At the same time, we will set out more detail on the allocation of CfDs, and the Government response to the call for evidence on the CfD supplier obligation. We will engage with interested stakeholders on the detailed drafting of the CfD contract, with two events in August to seek views. The final contract drafting will be published in December alongside the final strike prices, and implemented through regulations laid before Parliament in 2014.
29. In parallel, the Government will consult on the secondary legislation for the implementation of EMR from October this year. The EMR programme is on track to be implemented in 2014, with the first CfDs under the generic regime expected to be signed in the second half of 2014, and the first capacity auction at the end of 2014.
30. Finally – alongside the draft EMR Delivery Plan – we will publish a consultation on the transition arrangements from the Renewables Obligation, the current support mechanism for large-scale renewable generation, to CfDs. These arrangements will ensure that this transition is smooth and straightforward for investors and developers, maintaining confidence in the support landscape.
31. The announcements in this document are subject to state aid approval. The Government is in discussion with the European Commission to secure this.
Devolution
32. EMR will benefit consumers in all parts of the UK – delivering green growth and jobs, reliable supplies of electricity and at least cost. It will provide a consistent and integrated framework for investors, which is essential if we are to attract the private capital we need.
33. The draft strike prices published for consultation are underpinned by analysis conducted by DECC, National Grid and the System Operator Northern Ireland (SONI), and analysis has been shared and discussed with the Devolved Administrations through the Devolved Administration Consultation Group. We will continue to develop this engagement before the strike prices are set in the final Delivery Plan. We will also be seeking to agree a
Electricity Market Reform: Delivering UK Investment
11
Memorandum of Understanding on how the UK Government and Devolved Administrations will work together on EMR on an ongoing basis.
34. Following a joint research project with the Scottish Government on how to support renewables on Scottish islands, we are committed to taking forward work to consider how to provide additional support. The strong emerging option is to provide a separate strike price for renewables projects located on such islands (where these have clearly distinct characteristics to typical mainland projects). We expect further consideration of this emerging option to feed into a consultation on this issue in the summer. This consultation will consider what level of additional support would be appropriate, as well as deliverability, the potential impact on deployment, and affordability. We will take forward this work in time to allow a differential strike price to be set for these projects in the final Delivery Plan in December.
35. We will continue to work with Department of Enterprise, Trade and Investment in Northern Ireland on their decision on applying these strike prices in Northern Ireland, thus enabling a coherent UK-wide system for supporting low-carbon generation.
AP
PE
ND
IX A
: L
evy
Co
ntr
ol F
ram
ewo
rk a
nd
Dra
ft C
fD S
trik
e P
rice
s
Lev
y C
on
tro
l F
ram
ewo
rk –
Up
per
Lim
its
on
Sp
end
(£m
) (2
011/
12 p
rice
s)11
2014
/15
2015
/16
2016
/17
2017
/18
2018
/19
20
19/2
0 20
20/2
1
3,30
0 4,
300
4,90
0 5,
600
6,45
0 7,
000
7,60
0
Ren
ewab
le T
ech
no
log
y D
raft
Str
ike
pri
ces
(£/M
Wh
) (2
012
pri
ces)
P
ote
nti
al 2
020
Dep
loym
ent
Sen
siti
viti
es
(su
bje
ct t
o V
fM a
nd
co
st
red
uct
ion
) (G
W)12
20
14/1
5 20
15/1
6 20
16/1
7 20
17/1
8 20
18/1
9
Adv
ance
d C
onve
rsio
n T
echn
olog
ies13
(w
ith o
r w
ithou
t C
HP
14)
155
155
150
140
135
c. 0
.3
Ana
erob
ic D
iges
tion
(with
or
with
out
CH
P)
145
145
145
140
135
c. 0
.2
Bio
mas
s C
onve
rsio
n15
10
5 10
5 10
5 10
5 10
5 1.
2 –
4
Ded
icat
ed B
iom
ass
(with
CH
P) 1
6 17
120
120
120
120
120
c. 0
.3
Ene
rgy
from
Was
te (
with
CH
P)18
90
90
90
90
90
c.
0.5
11 C
ontr
ol to
tals
for
the
Levy
Con
trol
Fra
mew
ork
will
be
set i
n no
min
al te
rms
at th
e re
leva
nt S
pend
ing
Revi
ew.
12 D
epen
dent
on
indu
stry
cos
t red
uctio
ns o
ver t
ime
– fig
ures
are
not
Gov
ernm
ent f
orec
asts
and
do
not i
nclu
de d
eplo
ymen
t sup
port
ed u
nder
the
smal
l-sca
le F
eed-
In T
ariff
.
13 S
tand
ard
and
adva
nced
gas
ifica
tion
and
pyro
lysi
s, in
clud
ing
adva
nced
bio
liqui
ds.
14 C
ombi
ned
Hea
t and
Pow
er.
15 B
ased
on
biom
ass
cont
ract
s ce
asin
g to
pay
in 2
027.
16
The
pol
icy
of w
heth
er a
nd h
ow d
edic
ated
bio
mas
s w
ill b
e su
ppor
ted
unde
r Cf
Ds
will
be
conf
irm
ed w
ithin
the
draf
t EM
R D
eliv
ery
Plan
, pub
lishe
d in
July
201
3.
17 T
he d
raft
str
ike
pric
e is
bas
ed o
n th
e as
sum
ptio
n th
at D
edic
ated
Bio
mas
s CH
P ge
nera
tors
can
app
ly fo
r the
cur
rent
(1p/
kWh)
Ren
ewab
le H
eat I
ncen
tive
(RH
I) la
rge
biom
ass
tari
ff.
This
as
sum
ptio
n al
so a
pplie
s to
oth
er te
chno
logi
es w
ith C
HP.
Rev
ised
RH
I tar
iffs
wer
e co
nsul
ted
on in
Sep
tem
ber
2012
and
a G
over
nmen
t res
pons
e is
pen
ding
. D
ECC
may
adj
ust t
he D
edic
ated
Bi
omas
s CH
P st
rike
pri
ce (a
nd o
ther
tech
nolo
gies
with
CH
P) o
nce
RHI t
ariff
s ha
ve b
een
conf
irm
ed.
18 E
nerg
y fr
om w
aste
with
out C
HP
is n
ot s
uppo
rted
und
er C
fDs,
whi
ch is
con
sist
ent w
ith th
e po
sitio
n un
der
the
Rene
wab
les
Obl
igat
ion.
12
Electricity Market Reform: Delivering UK Investment
The
uppe
r en
d of
the
offs
hore
win
d ra
nge
is r
each
ed if
cos
ts c
ome
dow
n to
mee
t ind
ustr
y as
pira
tions
and
ther
e is
som
e de
lay
to n
ucle
ar a
nd C
CS b
uild
out
.
Geo
ther
mal
(w
ith o
r w
ithou
t CH
P)19
12
5 12
0 12
0 12
0 12
0 <
0.1
Hyd
ro20
95
95
95
95
95
c.
1.7
Land
fill G
as
65
65
65
65
65
c. 0
.9
Offs
hore
Win
d 15
5 15
5 15
0 14
0 13
5 8
– 16
Ons
hore
Win
d 10
0 10
0 10
0 95
95
9
– 12
Sew
age
Gas
85
85
85
85
85
c.
0.2
Larg
e S
olar
Pho
to-V
olta
ic
125
125
120
115
110
2.4
– 3.
2
Tid
al S
trea
m21
30
5 30
5 30
5 30
5 30
5 c.
0.1
W
ave22
30
5 30
5 30
5 30
5 30
5
Not
es:
F
urth
er d
etai
l will
be
publ
ishe
d in
Jul
y, a
s pa
rt o
f co
nsul
tatio
n on
the
dra
ft E
MR
Del
iver
y P
lan.
E
xpec
ted
depl
oym
ent u
nder
thes
e st
rike
pric
es is
bro
adly
con
sist
ent w
ith d
eplo
ymen
t sce
nario
s pr
esen
ted
in th
e R
enew
able
s R
oadm
ap23
an
d re
flect
s ne
w c
ost a
ssum
ptio
ns a
nd th
e gr
owth
fig
ures
ann
ounc
ed a
t B
udge
t 201
3.
The
y ar
e su
bjec
t to
chan
ge p
rior
to p
ublic
con
sulta
tion
in J
uly
2013
, as
par
t of
the
draf
t EM
R D
eliv
ery
Pla
n.
19 T
he p
ropo
sed
stri
ke p
rice
s fo
r ge
othe
rmal
hav
e be
en s
et w
ith th
e ai
m o
f giv
ing
equi
vale
nt r
etur
ns fr
om in
vest
men
t as
coul
d be
acc
rued
und
er th
e RO
. The
Gov
ernm
ent h
as c
omm
issi
oned
an
ext
erna
l rep
ort o
n th
e po
tent
ial o
f geo
ther
mal
pow
er in
the
UK
– du
e to
con
clud
e in
July
– a
nd it
s fin
ding
s w
ill b
e in
corp
orat
ed in
set
ting
the
final
str
ike
pric
es.
20 F
or la
rger
hyd
ro p
roje
cts,
DEC
C w
ill c
onsi
der
how
bes
t to
pric
e Cf
Ds
and
the
appr
opri
ate
leng
th o
f con
trac
ts o
n a
case
by
case
bas
is, s
imila
r to
the
prop
osed
app
roac
h fo
r Ti
dal R
ange
. 21
The
str
ike
pric
es fo
r Ti
dal S
trea
m a
nd W
ave
are
inte
nded
for
the
first
30
MW
cap
acity
of a
ny p
roje
ct.
For
high
er c
apac
ity p
roje
cts,
sup
port
for t
he a
dditi
onal
MW
will
be
set a
t the
off
shor
e w
ind
stri
ke p
rice.
22
As
per
prev
ious
foot
note
. 23
htt
ps:/
/ww
w.g
ov.u
k/go
vern
men
t/up
load
s/sy
stem
/upl
oads
/att
achm
ent_
data
/file
/802
46/1
1-02
-13_
UK_
Rene
wab
le_E
nerg
y_Ro
adm
ap_U
pdat
e_FI
NA
L_D
RAFT
13
Electricity Market Reform: Delivering UK Investment
T
here
is n
o pu
blis
hed
strik
e pr
ice
for
Tid
al R
ange
. In
stea
d, g
iven
the
lack
of c
ost d
ata
avai
lab
le,
DE
CC
will
co
nsid
er h
ow b
est
to p
rice
CfD
s an
d th
e ap
prop
riate
leng
th o
f con
trac
ts fo
r tid
al r
ange
pro
ject
s on
a c
ase
by c
ase
basi
s.
P
leas
e no
te th
at th
ere
are
14 p
ublis
hed
strik
e pr
ices
, in
cont
rast
to th
e 35
Ren
ewab
les
Obl
igat
ion
(RO
) su
ppor
t ban
ds fo
r re
new
able
s.
In
som
e ca
ses,
we
are
offe
ring
one
strik
e pr
ice
to c
over
two
or m
ore
supp
ort
band
s un
der
the
RO
, as
we
are
mov
ing
away
fro
m h
avin
g m
ore
than
one
sup
port
leve
l for
a s
ingl
e te
chno
logy
. In
add
ition
, we
are
not
offe
ring
strik
e pr
ices
for
a n
umbe
r of
RO
tec
hnol
ogie
s at
the
pres
ent
time,
for
exam
ple
due
to s
usta
inab
ility
rea
sons
.
S
ome
tech
nolo
gies
are
offe
red
the
sam
e st
rike
pric
e w
heth
er o
r no
t the
y ar
e C
ombi
ned
Hea
t and
Pow
er (
CH
P)
proj
ects
, as
note
d in
the
tabl
e ab
ove.
C
HP
pro
ject
s w
ill a
lso
rece
ive
supp
ort a
nd r
even
ue fo
r th
e he
at e
lem
ent o
f the
ir ge
nera
tion,
ther
efor
e ov
eral
l the
y w
ill r
ecei
ve g
reat
er
supp
ort
than
non
-CH
P g
ener
ator
s.
Thi
s is
inte
nded
to in
cent
ivis
e C
HP
gen
erat
ion.
14
Electricity Market Reform: Delivering UK Investment
AP
PE
ND
IX B
: P
olic
y o
n C
fD T
erm
s C
fD T
erm
D
escr
ipti
on
D
ecis
ion
Con
trac
t te
rm
Leng
th o
f the
con
trac
t fro
m
poin
t pr
ojec
t is
com
mis
sion
ed
(i.e.
sta
rts
gene
ratin
g).
Co
ntr
act
len
gth
sta
nd
ard
ised
, bu
t fl
exib
ility
to
ad
apt
to t
ech
no
log
y re
qu
irem
ents
R
enew
able
s pr
ojec
ts (
unde
r th
e ‘s
tand
ard’
allo
catio
n m
echa
nism
) –
15 y
ears
of
paym
ents
.
B
iom
ass
conv
ersi
on –
all
cont
ract
s ce
ase
to p
ay in
202
7 (r
egar
dles
s of
sta
rt d
ate)
, co
nsis
tent
with
the
appr
oach
und
er th
e R
enew
able
s O
blig
atio
n an
d re
flect
ing
the
tran
sitio
nal n
atur
e of
the
tec
hnol
ogy.
F
lexi
bilit
y fo
r th
e S
ecre
tary
of S
tate
to a
djus
t con
trac
t ter
m fo
r pr
ojec
ts w
here
te
chno
logy
just
ifies
a d
iffer
ent
dura
tion
(e.g
. nuc
lear
, CC
S, t
idal
ran
ge a
nd
pote
ntia
lly la
rge
hydr
o pr
ojec
ts).
Infla
tion
inde
xatio
n H
ow s
trik
e pr
ices
are
ad
just
ed fo
r in
flatio
n.
Ind
ex-l
inke
d p
aym
ents
S
trik
e pr
ice
fully
inde
xed
100%
to C
onsu
mer
Pric
e In
dex
(CP
I) th
roug
hout
ent
ire
term
.
Ref
eren
ce p
rice
The
diff
eren
ce p
aym
ents
are
ba
sed
on th
e di
ffere
nce
betw
een
the
refe
renc
e pr
ice
(a m
easu
re o
f the
ele
ctric
ity
mar
ket p
rice)
and
the
strik
e pr
ice.
Pay
men
ts b
ased
on
a r
elia
ble
mea
sure
of
the
mar
ket
pri
ce
In
term
itten
t te
chno
logi
es (
e.g.
win
d) –
hou
rly d
ay-a
head
pric
e.
B
asel
oad
tech
nolo
gies
(e.
g. n
ucle
ar)
– se
ason
-ahe
ad p
rice,
mov
ing
to y
ear-
ahea
d pr
ice
whe
n co
nditi
ons
allo
w.
15
Electricity Market Reform: Delivering UK Investment
Ref
inan
cing
W
heth
er to
incl
ude
any
arra
ngem
ents
to r
ecov
er
high
er r
etur
ns f
rom
pro
ject
re
finan
cing
.
Dev
elo
per
s fr
ee t
o r
ecyc
le c
apit
al, c
on
sum
ers
pro
tect
ed b
y p
rice
-set
tin
g p
roce
ss
N
o re
finan
cing
cla
use
in th
e ge
neric
CfD
con
trac
t.
B
ilate
rally
neg
otia
ted
CfD
s fo
r la
rge
proj
ects
may
hav
e di
ffere
nt a
ppro
ache
s,
incl
udin
g po
ssib
le r
efin
anci
ng c
laus
es.
Cha
nge
in la
w
and
othe
r ad
just
men
ts
Pro
tect
ions
giv
en to
de
velo
pers
aga
inst
cer
tain
ch
ange
s in
law
.
Dev
elo
per
s p
rote
cted
ag
ain
st c
han
ges
in
law
th
at t
arg
et a
pro
ject
, te
chn
olo
gy
or
the
CfD
C
ompe
nsat
ion
avai
labl
e fo
r m
ater
ial a
nd u
nfor
esea
ble
chan
ges
in la
w th
at u
niqu
ely
targ
et s
peci
fic te
chno
logi
es, i
ndiv
idua
l pro
ject
s or
CfD
hol
ders
as
a gr
oup.
P
rote
ctio
n al
so c
over
s po
litic
al d
ecis
ions
to s
hut d
own
a ge
nera
tor,
and
gen
eral
ch
ange
s in
law
tha
t ha
ve d
iscr
imin
ator
y ef
fect
s w
ithou
t obj
ectiv
e ju
stifi
catio
n.
P
rote
ctio
n ex
tend
s to
suc
h ch
ang
es in
law
that
lim
it a
gene
rato
r’s a
bilit
y to
eith
er
deliv
er it
s ou
tput
or
to r
ecei
ve a
ppro
pria
te p
aym
ent.
C
ompe
nsat
ion
will
adj
ust
strik
e pr
ices
to
refle
ct 1
00%
of
oper
atin
g co
sts,
a
prop
ortio
n of
cap
ital c
osts
(ta
perin
g ov
er ti
me
) an
d fo
r lo
st r
even
ues,
ove
r th
e te
rm
of th
e C
fD.
P
rote
ctio
n ag
ains
t ce
rtai
n ch
ange
s in
net
wor
k ch
arge
s, r
elat
ing
to th
e co
sts
of th
e ba
lanc
ing
syst
em a
nd tr
ansm
issi
on lo
sses
.
16
Electricity Market Reform: Delivering UK Investment
17
Cap
acity
ad
just
men
t A
mou
nt b
y w
hich
a d
evel
oper
ca
n re
duce
the
proj
ect
capa
city
(w
ith a
nd w
ithou
t pe
nalty
) be
twee
n ap
plyi
ng fo
r a
CfD
and
com
men
cem
ent o
f pa
ymen
t.
Dev
elo
per
s p
rovi
ded
wit
h f
lexi
bili
ty t
o v
ary
thei
r p
lan
s
D
evel
oper
s m
ay v
ary
capa
city
to a
cer
tain
lim
ited
degr
ee a
bove
or
belo
w th
eir
orig
ina
l pro
posa
l, w
ithou
t pen
alty
. D
evel
ope
rs w
ill b
e a
ble
to e
xerc
ise
part
of t
his
flexi
bilit
y be
fore
and
par
t afte
r co
nstr
uctio
n.
F
urth
er fl
exib
ility
pro
vide
d to
red
uce
capa
city
del
iver
ed b
eyon
d th
is le
vel,
but
with
a
redu
ctio
n to
the
strik
e pr
ice,
to e
ncou
rage
acc
urat
e pl
anni
ng a
nd p
reve
nt o
ver-
allo
catio
n of
the
ava
ilabl
e bu
dget
for
CfD
s.
Con
ditio
ns
prec
eden
t etc
. P
aram
eter
s to
ens
ure
proj
ect
deliv
ery.
D
evel
op
er f
lexi
bili
ty t
o d
eliv
er w
ith
in a
‘co
mm
issi
on
ing
win
do
w’
P
aym
ents
com
men
ce o
nce
spec
ified
sta
nda
rds
are
met
rel
atin
g to
con
nect
ion,
m
eter
ing,
cap
acity
inst
alm
ent,
and
cont
ract
pay
men
t/col
late
ral r
equ
irem
ents
.
S
atis
fact
ion
of c
ondi
tions
pre
cede
nt o
utsi
de o
f the
targ
et c
omm
issi
onin
g w
indo
w
lead
s to
a r
educ
tion
in t
he c
ontr
act’s
pay
men
t ter
m. F
ailu
re to
sat
isfy
by
the
long
st
op d
ate
coul
d le
ad to
term
inat
ion.
For
ce M
ajeu
re
Crit
eria
for
whe
n fle
xib
ility
will
be
allo
wed
on
a de
velo
per’s
co
ntra
ctua
l obl
igat
ions
.
Pro
tect
ion
ag
ain
st e
ven
ts o
uts
ide
of
the
con
tro
l of
the
dev
elo
per
F
orce
Maj
eure
will
allo
w r
elie
f for
circ
umst
ance
s be
yond
a d
evel
oper
’s c
ontr
ol
(whi
ch w
ill in
clud
e a
‘rea
sona
ble
and
prud
ent
oper
ator
test
’).
A
dditi
ona
l fle
xib
ility
wh
ere
conn
ectio
n d
elay
s ar
e ca
used
by
netw
ork
oper
ator
.
Dis
pute
re
solu
tion
Mec
hani
sm fo
r re
solv
ing
cont
ract
ual d
ispu
tes.
C
lear
pro
cess
to
res
olv
e d
isp
ute
s in
a t
imel
y m
ann
er, i
ncl
ud
ing
wit
h b
ind
ing
ar
bit
rati
on
D
evel
ope
r an
d C
fD C
ount
erpa
rty
will
see
k to
agr
ee in
form
al r
esol
utio
n of
dis
pute
s,
but
with
acc
ess
to e
xter
nal,
lega
lly b
indi
ng d
eter
min
atio
n of
dis
pute
s.
G
over
nmen
t ha
s no
con
trac
tual
rig
ht t
o im
pose
set
tlem
ents
.
Electricity Market Reform: Delivering UK Investment
Ter
min
atio
n C
ircum
stan
ces
whe
n co
ntra
ct
can
be te
rmin
ated
. A
pro
po
rtio
nat
e ap
pro
ach
to
co
ntr
act
enfo
rcem
ent
In
clud
es m
ater
ial b
reac
hes
of c
ontr
act
by g
ener
ator
s –
such
as,
non
-pay
men
t, fr
aud
and
non-
deliv
ery
of c
apac
ity (
subj
ect
to F
orce
Maj
eure
or
dela
y to
grid
con
nect
ion)
.
M
easu
res
that
enc
oura
ge g
ener
ator
s to
mov
e ba
ck in
to c
ompl
ianc
e w
ith th
e co
ntra
ct e
.g.
‘rem
edia
tion
plan
s’ a
nd p
aym
ent
susp
ensi
on.
Met
erin
g ar
rang
emen
ts
How
low
-car
bon
elec
tric
ity
gene
ratio
n is
rec
orde
d fo
r th
e pu
rpos
es o
f bill
ing.
Arr
ang
emen
ts t
o s
up
po
rt a
wid
e-ra
ng
e o
f p
roje
ct t
ypes
, usi
ng
exi
stin
g p
roce
sses
w
her
e p
oss
ible
Lo
ss a
djus
ted
net m
eter
ed e
nerg
y.
M
akin
g us
e of
exi
stin
g se
ttlem
ent a
rran
gem
ents
, whe
re p
ossi
ble.
A
rran
gem
ents
will
be
deve
lop
ed f
or t
rans
mis
sion
, di
strib
utio
n an
d pr
ivat
e w
ire
gene
ratio
n.
18
Electricity Market Reform: Delivering UK Investment
Department of Energy & Climate Change 3 Whitehall Place London SW1A 2AW www.decc.gov.uk
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