Referral of Contracts for Difference for Renewables Scheme (as at Allocation Round 5) by the Department for Business, Energy & Industrial Strategy
The Subsidy Advice Unit (SAU) published a report concerning the proposed Contracts for Difference for Renewables scheme.
The Subsidy Advice Unit (SAU) accepted a request for a report from the Department for Business, Energy & Industrial Strategy (BEIS) concerning the proposed Contracts for Difference (CfD) for Renewables scheme (as at Allocation Round 5), and has published its report providing advice to the Department for Energy Security and Net Zero.
| SAU referral type | Mandatory referral |
| SAU referral state | Closed |
| Sector | Electricity, gas, steam and air conditioning supply |
| SAU referral opened | 12 January 2023 |
Administrative timetable
| Date | Action |
|---|---|
| 12 January 2023 | Beginning of reporting period |
| 26 January 2023 | Deadline for receipt of any third party submissions (submissions after 5pm on this date cannot be taken into account) |
| 22 February 2023 | SAU report published |
Final report
22 February 2023: The SAU has published its report providing advice to the Department for Energy Security and Net Zero concerning the CfD scheme. The report includes the SAU’s evaluation of BEIS’s assessment of compliance of its proposed scheme with the requirements set out in the Subsidy Control Act 2022.
- Final report (22.2.23)
Note about references to BEIS
On 7 February 2023, responsibility for the CfD scheme transferred to the newly created Department for Energy Security and Net Zero. This webpage refers to BEIS as the department that made the referral and provided its assessment, and to the Department for Energy Security and Net Zero as the addressee of the report.
Request from BEIS
12 January 2023: The SAU has accepted a request for a report from BEIS concerning the CfD scheme. The fifth CfD allocation round (AR5) for CfD is planned to open to applications in March 2023. The request relates to a Subsidy Scheme of Particular Interest.
The SAU will prepare a report, which will provide an evaluation of the BEIS assessment of whether the scheme complies with the subsidy control requirements (Assessment of Compliance). The SAU will complete its report within 30 working days.
Information about the scheme provided by BEIS
The CfD scheme has existed since 2014 and aims to encourage low carbon electricity generation. CfDs are long-term (15-year) contracts between a low carbon electricity generator and the CfD counterparty, the Low Carbon Contracts Company (LCCC). The generator sells the electricity at a variable market price. When the market price is below the strike price agreed in the CfD, the generator receives a top-up payment from LCCC for the additional amount (funded by a levy on electricity suppliers). When the market price is above the strike price, the generator must pay back the difference to LCCC. The CfD is open to application from any eligible renewable electricity generating station being or to be built in Great Britain.
Eligible technologies are: advanced conversion technologies, anaerobic digestion (>5MW), dedicated biomass with combined heat and power (CHP), energy from waste with CHP, floating offshore wind, geothermal, hydro (>5MW and <50MW), landfill gas, offshore wind, onshore wind (>5MW), remote island wind (>5MW), sewage gas, solar photovoltaic (>5MW), tidal stream, and wave. Typically, CfDs are offered following a competitive allocation round, and the lowest bids are accepted until the maximum budget for the allocation round is reached.
AR5 round is planned to open to applications in March 2023. A number of changes have been made for AR5 which include:
- changes to strengthen the Supply Chain Plan process which is designed to encourage developers to commit to actions to strengthen the capacity, productivity and competitiveness of their supply chains
- strengthening the non-delivery disincentive mechanism, which penalises failure either to take up an offer of a CfD or to demonstrate delivery required by the relevant project milestone
- amending regulations to align with a change made for allocation round 4 on target dates for projects
Further changes are proposed to the CfD contract terms and conditions to ensure that they reflect current policy and that the scheme continues to function as originally intended. BEIS has published core auction parameters for AR5 which include moving to 2 technology groups, or ‘pots’, with offshore wind and remote island wind moving into Pot 1 to compete in the auction with other established technologies. BEIS do not anticipate changing these parameters but, if amendments become necessary, they will notify developers and issue the updated parameters with the final budget, which will be published in March 2023, ahead of the round opening.
Note on the budget for AR5 provided by BEIS
This budget will represent the yearly budget cap available for AR5 auctions over a 4 to 5-year valuation period, though successful projects will receive subsidy over a 15-year period, so an estimate will be provided for the total subsidy amount on the transparency database. As an indication, the estimated total subsidy amount for AR4 was £15 billion, though the estimated total subsidy amount for AR5 may be lower or higher than this. (These estimates are highly uncertain as actual payments will depend on market wholesale prices at the time and how much electricity each project generates: for further information, read Contracts for Difference (CfD) Allocation Round 4: Subsidy Control Transparency Database estimates).
Information for third parties
If you wish to comment on matters relevant to the SAU’s evaluation of the Assessment of Compliance concerning the CfD scheme, please send your comments before 5pm on the date stipulated in the timetable above. For guidance on representations relevant to the Assessment of Compliance, read the reporting period and transparency section in the Operation of the subsidy control functions of the Subsidy Advice Unit guidance.
Please send your submissions to us at sau-cfd2023@cma.gov.uk, copying the public authority: beiscontractsfordifference@beis.gov.uk.
Please also provide a contact address and explain in what capacity you are making the submission (for example, as an individual or a representative of a business or organisation).
Notes to third parties wishing to make a submission
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The SAU will only take your submission into account if it can be shared with BEIS. The SAU will send a copy of your submission to BEIS together with its report. This is to allow the public authority to take account of the submission in its decision as to whether to grant or modify the scheme or its assessment. We therefore ask that you provide express consent for your full and unredacted submission to be shared. We also encourage you to share your submission directly with BEIS, using the email address provided above.
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The SAU may use the information you provide in its published report. Therefore, you should indicate in your submission whether any specified parts of it are commercially confidential. If the SAU wishes to refer in its published report to material identified as confidential, it will contact you in advance.
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For further details on confidentiality of third party submissions, read identifying confidential information in the Operation of the subsidy control functions of the Subsidy Advice Unit guidance.
Contacts
- SAU project team: sau-cfd2023@cma.gov.uk
- CMA press team: 020 3738 6460 or press@cma.gov.uk