Electricity Market Reform (EMR): CfD Market Readiness Working Groups
Contracts for Difference (CfDs) will stimulate investment in low-carbon technologies by providing predictable revenue streams and thereby reducing risks to investors and making it easier and cheaper to secure finance.
In April 2013, DECC initiated a CfD market readiness project to help independent developers understand and prepare for the introduction of CfDs. This consists of two working groups reporting to a steering board. The groups include large and small suppliers, independent generators, legal firms, lenders, and others active in the market. Their work will complement the rest of DECC’s Electricity Market Reform Package, particularly the Off-taker of Last Resort mechanism which will also support independent developers in finding a route to market under CfDs.
Steering Board
DECC established the Steering Board to oversee the working groups, provide guidance on how DECC might best coordinate and deliver progress, and assist in the development of a coherent package.
Papers and minutes
Working Group One: Sample contracts
The first group considered how power purchase agreement (PPA) contracts will need to change to complement CfDs. PPAs will need to look slightly different under CfDs, and the outputs of this group will help ensure that financiers are familiar with the structures before the first CfDs are entered into. This will also help to reduce costs for the first movers, which can be a significant barrier for smaller market participants.
Securing a PPA, or another route to market, is a vital step in developing and financing energy projects, and facilitating this process should reduce barriers for smaller independent generators and help to encourage investment in the UK energy sector. These benefits would be particularly notable for early CfD projects and smaller projects, for which legal costs are a more significant proportion of their development costs.
Papers and minutes
Working Group 2: Code of practice
The second group has developed a set of best practice guidelines for the PPA market. This includes a description of the process for negotiating a PPA and what is expected from each party at each stage. The guidelines are intended to reduce barriers to entry for small independents and help them contribute to a healthier market.