It’s not easy being green: changes to Contracts for Difference (CfD) and Energy Bill provisions for onshore wind agreed

United Kingdom

While the “energy reset” speech in November confirmed the Government’s intention to hold further CfD allocation rounds at least for the less established technologies, and we now know that the first of these allocations is likely to be held in November 2016, the terms of these are changing.

On 11 May 2016, the Department for Energy and Climate Change (DECC) published a consultation on proposed amendments to the standard terms of future CfDs and changes related secondary legislation with the aim of having these in place for the next allocation round. DECC invites responses by 8 June 2016.

The consultation proposals focus on three key areas:

1. Cumulation of state aid

The UK’s CfD scheme was notified as state aid and approved by the European Commission in July 2014 with certain conditions including that there would be no cumulation of state aid– or overcompensation of low carbon generators. While the legislation had already excluded generators accredited under other support mechanisms such as the Renewables Obligation, the proposals would require the CfD generator to be responsible for assessing and monitoring (and paying back under the CfD) to account for any other forms of state aid it may have received.

2. Generator to bear the risk of planning consents being challenged

DECC proposes to amend the definition of “Foreseeable Change in Law” so as to (a) bring the definition in line with there being “no litigation” representation at Condition 28.1(G) of the CfD Standard Terms and Conditions; and (b) to include a new limb whereby the generator would bear the risk of a challenge being brought against planning consent granted for the generating station, regardless of whether it has been commenced, threatened or pending prior to the signing of the CFD.

This is motivated by DECC’s desire to prevent ‘budget blocking’ and chimes with, as noted below, its call for evidence to include time limits on the availability of force majeure protection.

3. Recognition that CfD generators may attach storage facilities to the CfD site

DECC is clear: the use of storage is not prohibited on CfD sites but has not yet proposed language of how it would permit a storage facility to co-locate with CfD generation assets. DECC considers that where a storage facility is attached to a CfD site, storage should be in a different BM Unit to the generation assets with CfD payments calculated on the metered volumes of the BM Unit relating to the generation assets only. Clearly a workable solution will be welcome by all parties, especially in light of the challenge to industry to bring down costs.

Some minor/technical amendments are also proposed chiefly in relation to amend the requirements on the LCCC on checking certain operational conditions precedents.

Further DECC has also sought views about limiting force majeure protection and discouraging the allocation of CfD to ‘underdeveloped projects’. These changes would be subject to further consultation but are indicative of the Government’s desire to find “ways to reduce costs to consumers’ bills, while maintaining certainty for investors” and avoid ‘budget blocking’. As part of this DECC also welcomes views to how it can reduce its risk of overspend on the Levy Control Framework arising from underestimating load factors especially for technologies like offshore wind.

RO grace periods for onshore wind also confirmed

Changes to the CfD come into play just as the Energy Act 2016 received Royal Assent on 12 May 2016 thereby closing the Renewables Obligation scheme for onshore wind projects, subject to certain grace periods. In particular, under one of these grace periods onshore wind farms which, as at 18 June 2015 (rather than, as had been subject to parliamentary debate, a later date), had secured planning permission, a grid connection and the necessary land rights are to be granted a 12 month grace period.

These changes come at a time when the UK’s attractiveness for investment in renewables has been dropping and recent announcements of certain CfDs being cancelled have unsettled some in the renewables sector. The Government is keen to stress that it remains committed to meeting its international targets. However, at present, the Government continues to be sending what appear to be fairly mixed messages over its climate change and renewables ambitions.