Contracts for Difference (CfDs) is intended to provide long-term revenue stabilisation to low-carbon Generators, allowing investment to come forward at a lower cost of capital and therefore at a lower cost to consumers.
CfDs support new investment in a wide-range of low-carbon generation and have been designed to provide efficient and cost-effective revenue stabilisation for new generation by reducing exposure to the volatile wholesale electricity price, as well as encouraging competition as the UK makes the transition to a low-carbon generation mix.
CfDs require Generators to sell energy into the market as usual but, to reduce this exposure to electricity prices, CfDs provide a variable top-up from the market price to a pre-agreed 'strike price'. At times of high market prices, these payments reverse and the Generator is required to pay back the difference between the market price and the strike price, thus protecting consumers from overpayment.
The CfD is implemented through a bilateral contract between the Generator and the Low Carbon Contracts Company (LCCC).
A dedicated website supported by all three Delivery Partners for Round 4 is available here - CfD Allocation Round 4 Resource Portal.
National Grid ESO is the Delivery Body for Electricity Market Reform (EMR). Our responsibilities in delivering the regime include:
Conducting analysis to support the Department for Business, Energy and Industrial Strategy (BEIS) in setting of Administrative strike prices
Assessment and qualification of applications and to notify applicants of the decision of qualification
Determination of disputes regarding the decision of CfD qualification (Tier 1 disputes)
Valuation of all applications and subsequent assessment as to whether an auction is required to determine which applicants will be awarded a CfD
Run the CfD allocation process
Report the value of applicants to BEIS
Production of reports as required to BEIS
Provide the LCCC with the information necessary to offer a CfD
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