Official Launching Second Contracts for Difference Allocation Round

OFFICIAL LAUNCHING THE SECOND CONTRACTS FOR DIFFERENCE ALLOCATION ROUND 16 March 2017

OFFICIAL Content What was published on 13 March? Response to Call for Evidence on Geothermal in the CFD Allocation Framework Contract changes What else you need to know for this round Further potential changes 2

OFFICIAL 13 March Publications The CFD Standard Terms and Conditions and Agreements Explanation of changes to the CFD Standard Terms Standard Terms Notice Allocation Round Notice Counterparty Costs Notice Allocation Framework Notice Budget Notice and Accompanying note The Allocation Framework for this round Government Response Call for Evidence on Geothermal in the CFD 3

OFFICIAL Response to Call for Evidence on Geothermal in the CFD We issued a call for evidence on fuelled technologies and geothermal which closed in December. The responses were used to inform the administrative strike price that we have now set for geothermal at 140/MWh for both delivery years of this round. We used the same methodology as that employed for all the other technologies as set out in the CFD strike price setting methodology paper published last year. This targets 19% of the supply curve. The wider response to the call for evidence on the fuelled technologies will be published in due course. 4

OFFICIAL Allocation Framework This version is largely the same as that used by National Grid in the previous round, with the only significant addition being of new rules to deal with governing the interleaving bids process in the auction. These new rules are intended to encourage developers to submit larger capacity bids at a lower price where they are able to do so, along with one for less capacity as a fall back if their larger bid does not fit within the budget. National Grid will go into more detail and explain how the auction works in practice. 5

OFFICIAL Contract Start Date The earliest start date for contracts has been updated to April 1st 2021, in line with the beginning of the first Delivery Year. Generators may commission in advance of this date and begin selling their electricity on the open market, but may not receive CFD payments until this date. Generators can still set their Target Commissioning Window start date up to a year in advance of their Target Commissioning Date. Image result for calendar clipart black and white 6

OFFICIAL CFD Contract Changes - overview We consulted on changes to the CFD contract in 2015 and 2016. Government responses are available on gov.uk 2015: https://www.gov.uk/government/consultations/electricity-market- reform-contracts-for-difference-consultation-on-changes-to-the-cfd- contract-cfd-regulations 2016: https://www.gov.uk/government/publications/contracts-for-difference- standard-terms-and-conditions-version-2-march-2017 We have incorporated the changes from both consultations into the CFD contract for the second allocation round. The key changes are summarised in the following slides. 7

OFFICIAL CFD Contract Changes 2016 consultation State and EU Aid To prevent overcompensation by the cumulation of aid. To bring the CFD scheme into line with our EU state aid clearance. Definition of Foreseeable Change in Law Clarifying this definition within the definition of qualifying change in law. Principally to clarify what situations are foreseeable and do not result in compensation to generators. Storage Clarifying how storage should be treated in CFD sites while ensuring that CFD payments cannot be made on electricity imported from the grid. A number of minor and technical changes to reduce administrative burden. 8

OFFICIAL CFD Contract Changes - 2015 Negative pricing: Revisions to prevent generation payment for any period of six or more consecutive hours where the pricing is negative, to comply with EU State aid requirements. Private Network Agreement Amendments to the Private Network Metering Operational Framework and Technical System Requirements to ensure reference to the most relevant industry standards, and Provide generators with greater flexibility in how they maintain their metering systems. Unincorporated Joint Ventures Confirmation that UJVs will be able to enter into CFDs and publication of a new UJV Agreement. Minor and technical amendments, including on milestone delivery requirements, representations and warranties and fuel measuring and sampling. 9

OFFICIAL What else you need to know for this round CHP Our expectation is that applicants identify as being with CHP to the extent that their intention is to operate as a CHP plant throughout the period during which they will be eligible to receive CFD support payments. However, applicants are strongly encouraged to take note of the CHP specific contract terms when making this determination. CHPQA The most recent update (Issue 6) was published in December 2015 and will apply to any CHP plants that are successful in the next Allocation Round. GN44 values provided for in CHPQA Issue 6 will be used to calculate the CHPQ multiplier in respect of the AR2 contracts. The Contracts for Difference (Definition of Eligible Generator) Regulations 2014 were amended in January 2017 by the Combined Heat and Power Quality Assurance Regulations 2016 to require eligible CHP generators to intend establish a generating station which complies with CHPQA Issue 6 rather than CHPQA Issue 5. 10

OFFICIAL What else you need to know for this round State Aid Transparency Requirements The UK is subject to certain transparency obligations contained in the Energy and Environment Guidelines 2014 (the EEAG), on the basis of which the European Commission first approved the CFD scheme in 2014. In order to comply with those obligations the UK will publish details of aid granted to individual CFD generators on the European Commission s state aid transparency website, which is available to the public. Those details, including the total amount of aid granted, will be updated annually. The transparency obligation applies in respect of all aid granted under CFDs awarded in the second and subsequent CFD allocation rounds. A link to the update can be found at: https://www.gov.uk/government/groups/contracts-for-difference-cfd-scheme 11

OFFICIAL Image result for contract change clip art black and white Further Potential Changes Contracts entered into in round 2 may require amendment to incorporate a number of additional changes UK needs to transpose the EU Directive on Indirect Land Use Change by 10th September 2017, This requires: a change to GHG standards from the use of bioliquids; minor amendments in the calculation of annualised carbon stock and; a change to the definition of waste and the addition of certain definitions in support of a new EU reporting obligation. BEIS will consult shortly on changes to the Renewables Obligation. We are exploring options for incorporating requirements into the CFD, and will consult on any specific proposals. Adjustment to the Transmission Loss Multiplier to reflect changes in the Balancing and Settlement Code which implement CMA remedy for localised transmission losses. 12

OFFICIAL Any Questions? 13