EGL61100 - Joint ventures: attribution of receipts to participants

Joint ventures that undertake electricity generation are liable to EGL in their own right on the same basis as other companies or groups. However, it can often be the case that investors in joint ventures enter into arrangements in relation to their share of the generation of the joint venture.

Where there is a qualifying joint venture (JV), the EGL makes specific provision in relation to the participants in the JV.

In particular, the legislation deals with two scenarios:

  • The JV may sell its generation to the participant which the participant sells onto the market. The participant may realise a different price for the electricity, due to the terms on which it is sold on or due to hedging instruments that it takes out in respect of the receipts. See EGL61200.
  • The JV may sell its generation to the market otherwise than through the participant, but the participant takes out a hedging instrument. Again, the effect of the hedge means that the participant may realise a different price for the electricity than that obtained by the JV. See EGL61400.

In both cases, the legislation looks to attribute the receipts and costs from the arrangements onto the participant in the JV.

Offset between JVs and participants

This could lead to the situation where a JV realises exceptional receipts, but the effect of the arrangements is that the participant realises a lower price for the generation. It is possible that this ‘shortfall’ by the participant can be offset against other exceptional receipts of the participant from other generation activities. However, it may also be possible that this shortfall would effectively be stranded in the participant.

Equally, it is possible for the JV to realise receipts below the benchmark price, but the effect of the arrangements is that the participant realises a higher price for the generation. It is possible that the shortfall in the JV would effectively be stranded in the JV.

The legislation permits the surrender of shortfalls from the participant to the JV or from the JV to the participant in certain circumstances – see EGL63000+ for details of this.

Alternatively, the participants and the JV may elect to treat the JV as transparent under the rules – see EGL64000+ for details of this election.

Further guidance

The definition of a JV for EGL purposes and the identification of its members are explained at EGL51000.