The Department for Energy and Climate Change requires a cash advance of £6,580,000 from the Contingencies Fund for financial year 2013-14, to support urgent preparatory work to set up a Contracts for Difference (CFD) counterparty; to fund a Panel of Technical Experts; and to fund external advisers in relation to transitional arrangements for early investors before Parliamentary approval of both the specific enabling legislation and the necessary Estimate.
Contracts for Difference (CfDs) are designed to ensure sufficient investment comes forward in time to replace old generating plant due to close from 2016 onwards with new low carbon plant, thus ensuring continued security of supply for the UK and contributing significantly towards achievement of our legally binding EU renewable energy target.
The Energy Bill will, subject to Royal Assent, provide for the establishment of a CFD counterparty. Work needs to commence now in order to ensure that the CFD counterparty is ready to sign and manage Contracts for Difference from mid-2014.
The Energy Bill also makes provision for transitional arrangements to enable developers to take investment decisions, where required, ahead of full implementation of electricity market reform. The Department needs to engage external advisers before the Bill receives Royal Assent to support the negotiation of any such arrangements to ensure they represent value for money for consumers.
Government has committed to setting up a Panel of Technical Experts in order to scrutinise the analysis that will inform the first Electricity Market Reform Delivery Plan. The first EMR delivery plan will be published in 2013 and set out the CfD strike prices for renewable technologies and the reliability standard for a Capacity Market. An advance is required to pay the Panel for this work.
Accordingly, Parliamentary approval for additional resources of £6,580,000 for this new service will be sought in an Estimate for the Department of Energy and Climate Change. Pending that approval, urgent expenditure estimated at £6,580,000 will be met by repayable cash advances from the Contingencies Fund.