Introduction to the CFD

James RushtonHead of Commercial LCCC

1 December 2016

Disclaimer

This presentation (including all content, whether oral or in writing) has been prepared for the exclusive use and benefit of those recipients to whom it is addressed. Unless LCCC provides express prior written consent, no part of this presentation should be reproduced, distributed or communicated to any third party. The content of these slides and any statements made by LCCC in the presentation is provided in good faith, however, neither the content of the slides nor any statements made are (or are intended to be) any form of representation, undertaking, warranty or legal advice and do not (and are not intended to) take precedence over the provisions of the CFD, the terms of which shall always prevail.

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Payment calculation under the CFDSt

rike

Pri

ce &

Ref

eren

ce P

rice

CFD

Pay

men

ts

Strike Price- Determined by competitive bidding

- No higher than the administrative cap

Reference Price- Determined by the day-ahead GB price

(Intermittent)

- For Baseload Technologies, derived from reported season-ahead trades

CFD Payment

-is based on the difference between the Strike Price and the relevant Reference Price

-is based on the minimum of the Metered Output and the Installed Capacity

- is adjusted for Transmission losses

- additional adjustment for CHP and renewable content of fuel for fuelled technologies (RQM)

- BSuoS adjustment if appropriate

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More than just the difference payment

Contract For

Difference

Difference Payment

15 Year Contract

Term

Dispute Resolution Processes

Change in Law

Protection

Flexibility Over

Delivery

Ability To Reduce

Capacity

Force Majeure

Protection against Grid

Delay

Index Linked Payments (to

CPI)

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Benefits to developers and investors

1. Mitigation of wholesale electricity price exposure by providing a fixed strike price to developers, largely stabilising project revenue

2. Private law contractual arrangement providing developers with a clear set of rights and obligations, and recourse to dispute resolution processes

3. Single counterparty owned by government and set up as a limited liability company

4. Early certainty and security of support levels in the project development process

5. Provisions that protect the value of the CFD to developers (e.g. change in law protection)

6. Limited termination rights

5

Stages of CFD processes and LCCC role

Supply

Chain Plans

reviewed by

BEIS

Minor and Necessary

Modification requests

processed by LCCC

BEIS DELIVERY BODY LOW CARBON CONTRACTS COMPANY

12 MONTHSAPPROX.

3-6 MONTHSAPPROX.

3-5 YEARS 15 YEARS FROM START DATE

Sign

contract

Milestone

Delivery

Date

Generator can

start contract at

any point within

TCW

End of TCW

is latest point at which

contract can ‘go live’

with fixed end date

Long Stop Date

beyond which CFD can be

terminated if project not

generating by this date

Contract

erosion

Budget,

Technology pots,

maxima/minima,

supply chain

requirements

Registration,

Application and

Allocation

Pre-

generation

contractual

requirements

Target

Commissioning

Window

(TCW)

Difference payments for

low carbon generation

Qualification

Appeals process run

by Ofgem (if needed)

6

Minor and Necessary Modifications

• Generators can apply to modify CFD prior to contract allocation but only for changes that are both ‘minor’ and ‘necessary’

• Applications for changes to be made to LCCC after publication of Allocation Round Notice and no later than 20 business days before the Application Closing Date Information to be provided:

- Short description of change

- Proposed amendment to CFD wording

- Explanation of why it is both Minor AND Necessary

Minor & Necessary Change Request FormRequests for Minor & Necessary Changes can be sent as an Excel attachment to minor.necessary@lowcarboncontracts.uk. So as to be considered for Projects in the 2014 allocation round,

Minor & Necessary Change Request Forms must be received by 1700 on the day that is 20 working days before the Allocation Closing day, i.e. 29 September 2014 based on Closing day of 27 October 2014. Forms received after this deadline in relation to 2014 allocation round projects will not be considered

prior to the closing date for that allocation round.

In this form, references to the “Regulations” are to The Contracts for Differences (Standard Terms) Regulations 2014 as laid before parliament on 23 June 2014.

Applicants should use one request form per change.

1. Applicant DetailsCompany name of applicant for CfD:Name of Project: >>>>>>>>>Individual making request: [Point of reference for all communications with the Low Carbon Contracts Company in relation to this request]E mail address: >>>>>>>Telephone number: >>>>>>>Postal address: >>>>>>>

Alternative e mail address: >>>>

Alternative Telephone number:2. Date

Date of Submission: >>>>>

Prior application made: Yes/No

If Yes, date of prior application: 2014 Allocation round Please ensure

Director’s statement is signed

Yes/No

Later Allocation round Yes/No

Date of Receipt:

To be completed by the Low Carbon Contracts Company

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Requirement to be both Minor and Necessary

• A modification will generally not be minor if it:

• Is likely to affect any generator liabilities or commercial benefits under the CFD

• Is likely to cause LCCC to incur cost in carrying out its obligations under the CFD or meeting

new obligations required by the modification

• Would affect any agreement between LCCC and any third party, or require new agreement

between LCCC and any third party

• A modification may be necessary if the applicant acting reasonably could not

accept the offer of a CFD without modification

• A modification will not be granted where its necessity relates to the

circumstances of the ownership or control of the applicant

8

Delivery obligations

9

12 months

12 months

Developer’s choice of timeframe (3 to 5 years)

12 months

(24 months for offshore wind)

Contract

signed

Target

Commissioning

Window

• Contract Production and signing followed by Initial Conditions Precedent

• Milestone Requirement

• Operational Conditions Precedent

Milestone

Requirement

ICP

OCP leading to

Start DateLongstop Date

Pre-generation activities including development,

procurement construction, testing and commissioning

CFD value eroding

if Generator has not

commissioned

Contract production and signing

• LCCC is responsible for producing and issuing CFD contracts

• After LCCC receives a CFD notification from National Grid in respect of your

project, before we send you a CFD contract, we will issue a letter to you

notifying you of processes and key dates:

• Our offer of a CFD over a 10 working day period

• Generator obligation to return signed CFD within following 10 working day period

• Subsequent publication of new CFDs on CFD Register

• Completion of Initial Conditions Precedent over 10 working day period after Agreement Date

Introduction to the CFD

Initial Conditions Precedent

• ICPs consist of:

• Legal Opinion - This confirms the Generator’s legal capacity and authority to enter into the CFD

• Know Your Customer - This is a process by which LCCC must be satisfied of the legal identity, ownership and control of the Generator

• Description of Facility - This requires the Generator to provide details of the assets comprising the Facility and a map or plan of the Facility

Introduction to the CFD

Milestone Requirement

• Within 12 months of contract signature, generators must demonstrate their commitment to delivering the project by fulfilling the Milestone Requirement in one of the following ways:

• By incurring actual spend equal to at least 10% of the Total Project Pre-Commissioning Costs which are the expected project development and construction costs for the relevant technology; or

• By evidencing various commitments to the Project, which are set out in the CFD including that the generator has sufficient means to finance the project

Introduction to the CFD

Operational Conditions Precedent

• Settlement Required Information and systems

• 80% of Installed Capacity Estimate has been Commissioned

• Satisfaction of Metering Compliance Obligations

• Location of Facility Metering Equipment

• Operational requirements of Communications Equipment

Introduction to the CFD

Installed Capacity

• ‘Installed Capacity’ is defined in terms of continuous operation at maximum capacity without causing damage

• Final Installed Capacity notice can’t exceed Initial Installed Capacity Estimate

• Installed Capacity can be reduced in certain circumstances

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Commissioning Tests

• To demonstrate the Final Installed Capacity of the Facility has been installed and commissioned, all of the Commissioning Tests must have been successfully completed

• Commissioning tests and procedures will be specific to each technology and the generator must provide supporting evidence in sufficient detail to support the Installed Capacity being Commissioned

Introduction to the CFD

Fuel Measurement Sampling

• Ofgem E-Serve is a contractor to LCCC in relation to

FMS and sustainability aspects of the CFD

• Sampling/measuring enables the generator to

determine:

- Quantity of each of the fuels used in generating

gross output each month

- Energy content of each fuel

- Fossil-derived contamination percentage by

energy content of each fuel

• Generators are to propose procedures to sample and

measure their fuel

• Ofgem E-Serve handles the procedure but LCCC will

be responsible for all final decision making

12

Phased CFDs

• Applicable to larger offshore wind projects

• Structured to be divestible

• Affects metering requirements and settlement compliance obligations

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Comparing phased CFD types

Single Metering CFD

• Each phase must have at least one exclusive BM Unit

• Not possible to have two or more phases sharing a BM Unit

Apportioned Metering CFD

• Additional metering and monitoring obligations

• SCADA data to enable apportionment of metered volumes across phases

Introduction to the CFD

Key changes to the Standard Terms since the first Allocation Round

There have been a number of changes to the CFD since the first Allocation Round. Broadly, these changes:

1. allow unincorporated Joint Ventures to enter into CFDs;

2. prevent payment being due for any period of six or more consecutive hours where the Intermittent Market Reference Price (the GB Day Ahead Hourly Price) is negative;

3. exclude the costs of the OFTO from the 10% spend Milestone Requirement;

4. require the Generator to warrant that it is not facing pending, threatened or actual litigation;

5. amend the original FMS and Sustainability arrangements to account for changes to the FMS and Sustainability arrangements under the RO;

6. amend the Metering Operational Framework and Technical System Requirements for the Private Network CFD to ensure they refer to the most up to date industry standards;

Introduction to the CFD

Further anticipated changes to the Standard Terms since the first Allocation Round

The following topics have been consulted upon and the government response will be published in due course:

1. cumulation of state aid;

2. definition of Foreseeable Change in Law; and

3. electricity storage.

Any changes covering these topics will be made to the draft contract, which is due to be published by 9 February.

Introduction to the CFD

LCCC Commercial Team

Ryan Trow

Commercial Lead

Sarah Paparo

Commercial Manager

James Rushton

Head of Commercial

Stephanie Houston

Junior Commercial Manager

Federica Maranca

Commercial Lead

Maris Koivastik

Junior Commercial Manager

Leonidas Papanikolaou Commercial Lead

James Walmsley

Commercial Manager

Shazia Hussain

Junior Commercial Manager

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Approach to contract management

• Proactive contract management approach focussed on generation outcomes

• Each generator has a dedicated Contract Management team

• Each team covers all the projects that are operated by a Company or Group

• Use of web site to post

• standardised documentation (Contract Notices)

• guidance (Key Dates Letter, ICPs)

• Feedback always welcome

• Topics covered in future events

• Material available on web site

• Website www.lowcarboncontracts.uk; Email: contractmanagement@lowcarboncontracts.uk

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