A detailed draft of the contract that Government will offer investors in low-carbon energy generation was published today, providing further certainty to prospective developers and investors.
Government is reforming the electricity market through the Energy Bill in order to keep the lights on, decarbonise the economy and minimise costs to consumers.
A new support mechanism (long-term Contracts for Difference) is being introduced, alongside a Capacity Market, that will together help incentivise up to £110 billion of private sector investment to 2020, to renew the UK’s energy infrastructure.
Contracts for Difference are vital to give investors in low-carbon generation the confidence they need to pay the up-front costs of major new energy infrastructure projects.
Today, the draft terms of the contracts were published, alongside the methodology through which contracts will be allocated. This follows the publication in June, ahead of schedule, of the draft strike prices for these contracts.
Business and Energy Minister Michael Fallon said:
“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.
“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.”
Contracts for Difference are the most efficient way to provide long-term support for all forms of low carbon generation – including nuclear, renewables and Carbon Capture & Storage.
They give greater certainty and stability of revenues by removing exposure to volatile wholesale prices, and protect consumers from paying for support when electricity prices are high. They therefore make the development of low carbon generation cheaper for both investors and consumers.
Industry will be able to provide feedback on the draft contract terms over the summer, and these views will be considered before Government publishes final terms which is expected in December 2013.
Notes for Editors
In November 2012 we published the “Feed in Tariff with Contract for Difference: Operational Framework” and proposed Heads of Terms for a Contract for Difference (CfD Heads of Terms). These documents set out the key design features for CfDs and our high level policy positions at that time
Since the publication of the November Operational Framework and the CfD Heads of Terms, we have continued to work with industry and various stakeholder groups to develop a detailed CfD allocation process and to prepare more fully developed draft CfD terms.
Today, 7 August 2013, we have published the draft Contract, a draft CfD allocation process and some supporting documents as part of a wider process of stakeholder engagement.
The Energy Bill is expected to receive Royal Assent by end of 2013, subject to Parliamentary timings.