Government consults on draft terms for contracts for difference scheme

The draft 'contract for difference' (168-page / 719KB PDF) (CfD) will govern subsidies for investors in qualifying low carbon technologies such as nuclear, carbon capture and storage, and renewables.

The subsidies are available to developers which meet a number of conditions such as obtaining planning permission for projects and providing evidence that the technology connects to the National Grid or distribution network.

Payments made under the CfD will be calculated with reference to a technology-dependent 'strike price' and a market reference price.

The Government said that investors which successfully apply for CfDs can avoid "exposure to volatile wholesale prices" and that the measures will help "protect consumers from paying for support when electricity prices are high". System operators will be able to claw back money in cases where the market price is higher than the strike price for the low carbon energy technology concerned.

"No other sector is equal in scale to the British power market, in terms of the opportunity that it offers to investors, and the scale of the infrastructure challenge," Business and Energy Minister Michael Fallon said.

"The key contract terms have been published in detail to provide the energy sector and investment community with further certainty, so they can get on and invest. When compared to the existing system of support, the Renewables Obligation, this new support mechanism will make it cheaper to deliver low-carbon generation by around £5 billion up to 2030. This will put the UK one step ahead in the global race to develop clean technologies, and will support up to 250,000 jobs across the energy sector," the Minister added.

The draft terms detailed in the contract for difference are open to consultation until 2 September. Final contract terms are expected to be detailed by the Government in December.

"We welcome the publishing by DECC of the draft CfD Contract terms, which will hopefully provide a degree of clarity on a key piece of EMR architecture," projects expert Ronan Lambe of Pinsent Masons, the law firm behind Out-Law.com, said.

"It is hoped that the terms will go some way to providing detail as to how a number of issues in the CfD Heads of Terms which have been flagged by industry will be resolved, such as Change in Law, interface with the Supplier Obligation and ability for the Generator to terminate the CfD. We consider this to be a significant EMR milestone," he added.