EGL24200 - Allowable costs: qualifying electricity purchase costs

The expense of any electricity used in the normal operation of a power plant is not deductible from the exceptional receipts of a generating undertaking. For example, no deduction would be available for electricity costs for electricity consumed at the site while the power plant is offline. However, where the undertaking needs to purchase power to meet its obligations under an agreement to supply power that would be attributable generation if it were actually generated, but is not generated, then that cost can be deducted as an allowable cost.

Example:

EA Generation Ltd has a PPA with a third-party supplier that it is unable to fulfil because of essential maintenance work at a relevant generating station. The agreement was for 20,000 MWh of power at £90 per MWh, but it can only generate 17,000 MWh. EA Generation Ltd is paid in full for the 20,000 MWh and fulfils the contract by purchasing 3,000 MWh on the wholesale market at £125 per MWh. The receipt of £1.8 million is included as a generation receipt, attributed to the generation of 20,000MWh. The company has an allowable cost of £375,000 for the qualifying electricity purchase.

Note that when calculating the generation receipts, the attributable generation is reduced by the amount of generation it expected to supply, but did not actually generate, because of the provision at F(2)A23/S282(4). The full receipts of £1.8 million (20,000 MWh at £90) are included as generation receipts.

When calculating the maximum amount that would not be exceptional receipts (at Step 2 in s247), only the actual generation of 17,000 MWh is included.