Contracts for difference Supplier Obligation: Improving efficiency & transparency
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Detail of outcome
2 February 2017 update
In January 2016, the government published the above government response to a consultation proposing a series of technical amendments to the CFD supplier obligation. These proposals were aimed at reducing costs to consumers through improving the efficiency and transparency of the scheme.
The government made several changes to the scheme from 1 April 2016, and in the government response signalled its intention to lay regulations in Parliament to implement the remaining measures in 2017.
The associated regulations have now been laid before Parliament (The Electricity Supplier Payments (Amendment) Regulations 2017). The impact assessment published in January 2016 includes an analysis of these measures and is available on the legislation.gov.uk website.
Measures to be implemented:
- Making reconciliation payments more quickly after the end of the quarter;
- Amending the period over which the total reserve amount is calculated;
- Allowing the CFD Counterparty to reduce the total reserve amount without notice;
- Removing the risk that the CFD Counterparty is not able to recover compensation payments after 10 financial quarters;
- Preventing double counting of green import and energy intensive industry exemptions;
- Excluding certain defaulting suppliers from making mutualisation payments.
Removing the risk of compensation payments beyond 10 quarters.
Following feedback received through consultation the government stated in the government response that it would further consider how best to take the measure forward. The government has since engaged with stakeholders and decided to implement a revised approach so that any payments owed to generators after 10 quarters would be classified as non-generation payments and included in the next reconciliation determination. This proposal resolves the primary concern of ensuring that the CFD Counterparty has the ability to recover payments from suppliers for costs that relate to generation that occurred over 10 quarters ago, whilst addressing one of the main arguments raised by respondents against the original proposal that generation payments should be paid by suppliers according to their market share at the time of generation. In addition, this proposal will be considerably cheaper to implement that the original proposal because it does not require changes to the settlement system.
In September 2015, the government issued a consultation that proposed a series of technical amendments to the CFD supplier obligation with the aim of reducing costs to consumers through improving efficiency and transparency. This document sets out the government response to that consultation.
This document summarises the responses that have been received and sets out the policy decision and next steps.
The associated regulations and impact assessment have been laid before Parliament alongside publication of this government response will soon be available on the legislation.gov.uk website.
Original consultation
Consultation description
The consultation and impact assessment set out proposed amendments to the contracts for difference (CFD) Supplier Obligation. The amendments aim to lower the costs of CFDs that are passed onto consumers by:
- Improving the efficiency of the CFD Supplier Obligation design
- Improving the transparency around CFD costs
- Making minor and technical amendments that clarify provisions in the regulations
The department for Business, Innovation and Skills (BIS) are jointly consulting on amendments to the list of sectors within which electricity intensive companies can apply for an exemption from the costs of CFDs.
This consultation is relevant to electricity suppliers in Great Britain, low carbon electricity generators who hold or intend to apply for CFDs, electricity consumers and their representatives, ELEXON, the Low Carbon Contracts Company and other stakeholders with an interest in the energy sector.
Documents
Last updated 2 February 2017 + show all updates
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Laying of associated regulations.
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Government Response published
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Addition of draft regulations.
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First published.