Introduction to the CFD James Rushton Head of Commercial LCCC 1 December 2016
Disclaimer This presentation (including all content, whether oral or in writing) has been prepared for the exclusive use and benefit of those recipients to whom it is addressed. Unless LCCC provides express prior written consent, no part of this presentation should be reproduced, distributed or communicated to any third party. The content of these slides and any statements made by LCCC in the presentation is provided in good faith, however, neither the content of the slides nor any statements made are (or are intended to be) any form of representation, undertaking, warranty or legal advice and do not (and are not intended to) take precedence over the provisions of the CFD, the terms of which shall always prevail. 2
Payment calculation under the CFD Strike Price Strike Price & Reference Price - Determined by competitive bidding - No higher than the administrative cap Reference Price - Determined by the day-ahead GB price (Intermittent) - For Baseload Technologies, derived from reported season-ahead trades CFD Payment -is based on the difference between the Strike Price and the relevant Reference Price CFD Payments -is based on the minimum of the Metered Output and the Installed Capacity - is adjusted for Transmission losses - additional adjustment for CHP and renewable content of fuel for fuelled technologies (RQM) - BSuoS adjustment if appropriate 3
More than just the difference payment Difference Payment Index Linked 15 Year Payments (to Contract CPI) Term Protection Dispute Contract against Grid Resolution Delay Processes For Difference Change in Force Law Majeure Protection Ability To Flexibility Reduce Over Capacity Delivery 5
Benefits to developers and investors 1. Mitigation of wholesale electricity price exposure by providing a fixed strike price to developers, largely stabilising project revenue 2. Private law contractual arrangement providing developers with a clear set of rights and obligations, and recourse to dispute resolution processes 3. Single counterparty owned by government and set up as a limited liability company 4. Early certainty and security of support levels in the project development process 5. Provisions that protect the value of the CFD to developers (e.g. change in law protection) 6. Limited termination rights 5
Stages of CFD processes and LCCC role APPROX. APPROX. 12 MONTHS 15 YEARS FROM START DATE 3-6 MONTHS 3-5 YEARS Budget, Pre- Target Technology pots, Registration, Difference payments for generation Commissioning maxima/minima, Application and low carbon generation contractual Window supply chain Allocation requirements (TCW) requirements LOW CARBON CONTRACTS COMPANY BEIS DELIVERY BODY Supply Generator can Contract Chain Plans start contract at erosion Qualification reviewed by any point within Appeals process run Long Stop Date BEIS TCW by Ofgem (if needed) beyond which CFD can be Milestone Sign End of TCW terminated if project not Minor and Necessary Delivery contract is latest point at which generating by this date Modification requests Date contract can ‘go live’ processed by LCCC with fixed end date 6
Minor and Necessary Modifications • Generators can apply to modify CFD prior to Minor & Necessary Change Request Form Requests for Minor & Necessary Changes can be sent as an Excel attachment to minor.necessary@lowcarboncontracts.uk. So as to be considered for Projects in the 2014 allocation round, Minor & Necessary Change Request Forms must be received by 1700 on the day that is 20 working days contract allocation but only for changes that are before the Allocation Closing day, i.e. 29 September 2014 based on Closing day of 27 October 2014. Forms received after this deadline in relation to 2014 allocation round projects will not be considered prior to the closing date for that allocation round. both ‘minor’ and ‘necessary’ In this form, references to the “Regulations” are to The Contracts for Differences (Standard Terms) Regulations 2014 as laid before parliament on 23 June 2014. Applicants should use one request form per change. • Applications for changes to be made to LCCC after 1. Applicant Details Company name of applicant for CfD: publication of Allocation Round Notice and no Name of Project: >>>>>>>>> Individual making request: [Point of later than 20 business days before the Application reference for all communications with the Low Carbon Contracts Closing Date Information to be provided: Company in relation to this request] E mail address: >>>>>>> - Short description of change Telephone number: >>>>>>> Postal address: >>>>>>> - Proposed amendment to CFD wording Alternative e mail address: >>>> Alternative Telephone number: 2. Date - Explanation of why it is both Minor AND Date of Submission: >>>>> Prior application made: Yes/No If Yes, date of prior application: Necessary 2014 Allocation round Please ensure Yes/No Director’s statement is signed Later Allocation round Yes/No Date of Receipt: To be completed by the Low Carbon Contracts Company 7
Requirement to be both Minor and Necessary • A modification will generally not be minor if it: • Is likely to affect any generator liabilities or commercial benefits under the CFD • Is likely to cause LCCC to incur cost in carrying out its obligations under the CFD or meeting new obligations required by the modification • Would affect any agreement between LCCC and any third party, or require new agreement between LCCC and any third party • A modification may be necessary if the applicant acting reasonably could not accept the offer of a CFD without modification • A modification will not be granted where its necessity relates to the circumstances of the ownership or control of the applicant 8
Delivery obligations ICP 12 months Milestone Contract OCP leading to Longstop Date Requirement signed Start Date Target CFD value eroding Pre-generation activities including development, Commissioning if Generator has not procurement construction, testing and commissioning Window commissioned 12 months (24 months for offshore wind) 12 months Developer’s choice of timeframe (3 to 5 years) • Contract Production and signing followed by Initial Conditions Precedent • Milestone Requirement • Operational Conditions Precedent 9
Contract production and signing • LCCC is responsible for producing and issuing CFD contracts • After LCCC receives a CFD notification from National Grid in respect of your project, before we send you a CFD contract, we will issue a letter to you notifying you of processes and key dates: • Our offer of a CFD over a 10 working day period • Generator obligation to return signed CFD within following 10 working day period • Subsequent publication of new CFDs on CFD Register • Completion of Initial Conditions Precedent over 10 working day period after Agreement Date Introduction to the CFD
Initial Conditions Precedent • ICPs consist of: • Legal Opinion - This confirms the Generator’s legal capacity and authority to enter into the CFD • Know Your Customer - This is a process by which LCCC must be satisfied of the legal identity, ownership and control of the Generator • Description of Facility - This requires the Generator to provide details of the assets comprising the Facility and a map or plan of the Facility Introduction to the CFD
Milestone Requirement • Within 12 months of contract signature, generators must demonstrate their commitment to delivering the project by fulfilling the Milestone Requirement in one of the following ways: • By incurring actual spend equal to at least 10% of the Total Project Pre- Commissioning Costs which are the expected project development and construction costs for the relevant technology; or • By evidencing various commitments to the Project, which are set out in the CFD including that the generator has sufficient means to finance the project Introduction to the CFD
Operational Conditions Precedent • Settlement Required Information and systems • 80% of Installed Capacity Estimate has been Commissioned • Satisfaction of Metering Compliance Obligations • Location of Facility Metering Equipment • Operational requirements of Communications Equipment Introduction to the CFD
Installed Capacity • ‘Installed Capacity’ is defined in terms of continuous operation at maximum capacity without causing damage • Final Installed Capacity notice can’t exceed Initial Installed Capacity Estimate • Installed Capacity can be reduced in certain circumstances 11
Commissioning Tests • To demonstrate the Final Installed Capacity of the Facility has been installed and commissioned, all of the Commissioning Tests must have been successfully completed • Commissioning tests and procedures will be specific to each technology and the generator must provide supporting evidence in sufficient detail to support the Installed Capacity being Commissioned Introduction to the CFD
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