Contracts for Difference: Get ready for AR7

The Government’s Contract for Difference (“CfD”) support scheme for low-carbon electricity generation projects will re-open for applications on 7 August and close on 27 August. Application Round 7 (“AR7”) will incorporate recent amendments made by the Government to the scheme, such as the introduction of eligibility requirements for repowered onshore wind projects and the extension of the phased CfD policy to floating offshore wind.

What is the CfD scheme?

CfDs encourage investment in clean energy as they shield generators from fluctuating market prices. Entering into a long-term agreement with the Government-owned Low Carbon Contracts Company (“LCCC”) guarantees the generator a fixed price per unit of electricity generated (a ‘strike price’). This is set by auction during the Allocation Round and remains fixed for the duration of a CfD subject to annual index-linked adjustments.

The CfD scheme is even more attractive to developers of fixed and floating offshore wind, as the Clean Industry Bonus (CIB) offers additional CfD revenue support in exchange for investment in more sustainable supply chains. Due to the success of the first round of CIB, with £544 million of investment allocated to support the offshore wind supply chain, the Government is considering expanding the CIB to hydrogen and onshore wind.

How do CfDs interact with Corporate PPAs?

CfDs and Corporate PPAs both offer long term revenue certainty to generators and are mostly seen as complementary routes to market. Being Government-backed, CfDs offer a level of security, with limited credit risk and often longer tenors, but a generator must go through a highly competitive auction process which only occurs once per year. Corporate PPAs, on the other hand, are bespoke commercial arrangements that can be negotiated and entered into at any time of year.

However, we understand from recent conversations with clients that the announcement of CfD allocation windows can make some counterparts reluctant to engage in Corporate PPA negotiations until the allocations are announced. This is to avoid what they perceive as wasted time and money on PPA negotiations only for the generator to be granted a preferable CfD. Now that the Government CfD scheme is a yearly occurrence, it will be interesting to see whether this has a cyclical effect on the Corporate PPA market.

How can I get ready for AR7?

The registration window is now open and will close at 12pm on 27 August. Organisations should register as soon as possible ahead of the application window on 7 August, as the registration information requires manual verification by the delivery body and so may take several days. The first step is to complete corporate particulars and details of an authorised person relating to the CfD company on the Electricity Market Report CfD portal.

Registered entities can then apply through the portal when the application window opens on 7 August. The application includes questions on the technology type and capacity of the project, any relevant connection agreements, planning consents, the corporate information of the applicant and a set of declarations, along with supporting evidence.

Once the application window has closed, applications are filtered based on whether they qualify under the Allocation Framework. The scheme then moves to the auction stage, whereby projects bid against each other to secure a CfD at a fixed strike price. 

For the first time, separate timelines have been released for offshore wind and non-offshore wind technologies, although the application window will be the same for both.

At Bird & Bird, we advise clients seeking to secure a CfD and can guide you through each step of the application and auction process. There are only a few weeks left to go before AR7 opens, so please contact our team if you’d like our support or guidance in your AR7 application.