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Detail of outcome
This consultation sought views on the detailed OLR policy design to implement the scheme. The key aim of the Offtaker of Last Resort is to encourage competition in the Power Purchase Agreement (PPA) market. It would do this by providing eligible generators with a guaranteed ‘backstop’ route-to-market at a specified discount to the market price. The discount would be set to be larger than discounts expected to be available in the market, ensuring that it is a genuine ‘last resort’. The OLR would be implemented by placing an obligation on certain suppliers (and a right on all other licensed suppliers meeting the minimum credit requirement) to bid to enter into a one-year Backstop PPA with an eligible independent renewable energy generator, when requested. The costs (or profits) incurred by the winning bidder on taking on the generator’s power would then be levelised across all licensed suppliers.
By guaranteeing access to the market at a specified price, the OLR will (in conjunction with the CfD top-up payments) provide comfort to lenders and investors over the worst-case price that the generator will receive for its power. This should enable lenders and investors to become comfortable with a generator accessing a wider range of counterparties and contracting arrangements, including shorter term PPAs or PPAs with new entrant counterparties. This should reduce the cost of investment in renewable electricity, boosting competition amongst both generators and offtakers, and lowering costs to consumers.
This Government is committed to delivering cleaner energy at least cost, as well as ensuring the security of electricity supply. The Government’s Electricity Market Reform (EMR) programme provides an ambitious package of measures to incentivise the investment needed to replace the UK’s ageing electricity infrastructure with a more diverse and low-carbon energy mix. Up to £110 billion of capital investment is needed from now until the end of the decade.
It is imperative that independent renewable generators are able to access the energy market and help deliver this goal. The Offtaker of Last Resort will be vital to improve the route-to-market options for such generators, which will help unlock a significant pipeline of projects and bring essential competition, diversity and innovation to the market.
The Offtaker of Last Resort (OLR) aims to guarantee eligible renewable CfD generators a route-to-market in such a way that, alongside the competitive allocation of CfDs, reduces the cost of investment in renewable electricity generation, boosts competition, and lowers costs to consumers.
At its simplest, the OLR achieves this by providing renewable CfD generators with a guaranteed, ‘backstop’ route-to-market for their power: a Backstop Power Purchase Agreement (BPPA). This will be at a significant discount to PPAs available in the open market. When combined with the CfD top up price, this will help investors and lenders understand the ‘worst case’ price that the generator will receive for its power, giving them more certainty over the route-to-market risks. This is intended to enable lenders to accept more innovative routes-to-market, allowing generators to compete on a level playing field, and bringing more competition and innovation into the generation market.
The high level policy design for the OLR was outlined in our February Consultation. DECC is now seeking views on the implementation of the OLR, including the proposed processes for applying and allocating BPPAs, refunding offtakers for providing the service, and reviewing the appropriateness of the scheme.
This consultation is being published alongside:
- The policy’s Impact Assessment
- The draft BPPA contract
- The draft Regulations; and
- The draft License Conditions.
Responses to the consultation
DECC is seeking input from as wide a range of interested parties as possible and the consultation includes a series of broad questions to help shape contributions from interested parties. The final secondary legislation, which we aim to have in place by the time of the first CfD auction this autumn, will draw on evidence submitted during the 4 week consultation period. Consultation responses can be sent to firstname.lastname@example.org