Introduction to the CFD. James Rushton Head of Commercial LCCC 1 December 2016

Transcription

1 Introduction to the CFD James Rushton Head of Commercial LCCC 1 December 2016

2 Disclaimer This presentation (including all content, whether oral or in writing) has been prepared for the exclusive use and benefit of those recipients to whom it is addressed. Unless LCCC provides express prior written consent, no part of this presentation should be reproduced, distributed or communicated to any third party. The content of these slides and any statements made by LCCC in the presentation is provided in good faith, however, neither the content of the slides nor any statements made are (or are intended to be) any form of representation, undertaking, warranty or legal advice and do not (and are not intended to) take precedence over the provisions of the CFD, the terms of which shall always prevail. 2

3 CFD Payments Strike Price & Reference Price Payment calculation under the CFD Strike Price - Determined by competitive bidding - No higher than the administrative cap Reference Price - Determined by the day-ahead GB price (Intermittent) - For Baseload Technologies, derived from reported season-ahead trades CFD Payment -is based on the difference between the Strike Price and the relevant Reference Price -is based on the minimum of the Metered Output and the Installed Capacity - is adjusted for Transmission losses - additional adjustment for CHP and renewable content of fuel for fuelled technologies (RQM) - BSuoS adjustment if appropriate 3

4 More than just the difference payment Index Linked Payments (to CPI) Difference Payment 15 Year Contract Term Protection against Grid Delay Force Majeure Contract For Difference Dispute Resolution Processes Change in Law Protection Ability To Reduce Capacity Flexibility Over Delivery 5

5 Benefits to developers and investors 1. Mitigation of wholesale electricity price exposure by providing a fixed strike price to developers, largely stabilising project revenue 2. Private law contractual arrangement providing developers with a clear set of rights and obligations, and recourse to dispute resolution processes 3. Single counterparty owned by government and set up as a limited liability company 4. Early certainty and security of support levels in the project development process 5. Provisions that protect the value of the CFD to developers (e.g. change in law protection) 6. Limited termination rights 5

6 Stages of CFD processes and LCCC role APPROX. 3-6 MONTHS APPROX. 3-5 YEARS 12 MONTHS 15 YEARS FROM START DATE Budget, Technology pots, maxima/minima, supply chain requirements Registration, Application and Allocation Pregeneration contractual requirements Target Commissioning Window (TCW) Difference payments for low carbon generation BEIS DELIVERY BODY LOW CARBON CONTRACTS COMPANY Supply Chain Plans reviewed by BEIS Minor and Necessary Modification requests processed by LCCC Qualification Appeals process run by Ofgem (if needed) Sign contract Milestone Delivery Date Generator can start contract at any point within TCW End of TCW is latest point at which contract can go live with fixed end date Contract erosion Long Stop Date beyond which CFD can be terminated if project not generating by this date 6

7 Minor and Necessary Modifications Generators can apply to modify CFD prior to contract allocation but only for changes that are both minor and necessary Applications for changes to be made to LCCC after publication of Allocation Round Notice and no later than 20 business days before the Application Closing Date Information to be provided: - Short description of change - Proposed amendment to CFD wording - Explanation of why it is both Minor AND Necessary Minor & Necessary Change Request Form Requests for Minor & Necessary Changes can be sent as an Excel attachment to minor.necessary@lowcarboncontracts.uk. So as to be considered for Projects in the 2014 allocation round, Minor & Necessary Change Request Forms must be received by 1700 on the day that is 20 working days before the Allocation Closing day, i.e. 29 September 2014 based on Closing day of 27 October Forms received after this deadline in relation to 2014 allocation round projects will not be considered prior to the closing date for that allocation round. In this form, references to the Regulations are to The Contracts for Differences (Standard Terms) Regulations 2014 as laid before parliament on 23 June Applicants should use one request form per change. 1. Applicant Details Company name of applicant for CfD: Name of Project: >>>>>>>>> Individual making request: [Point of reference for all communications with the Low Carbon Contracts Company in relation to this request] E mail address: >>>>>>> Telephone number: >>>>>>> Postal address: >>>>>>> Alternative e mail address: >>>> Alternative Telephone number: 2. Date Date of Submission: >>>>> Prior application made: Yes/No If Yes, date of prior application: 2014 Allocation round Please ensure Yes/No Director s statement is signed Later Allocation round Yes/No Date of Receipt: To be completed by the Low Carbon Contracts Company 7

8 Requirement to be both Minor and Necessary A modification will generally not be minor if it: Is likely to affect any generator liabilities or commercial benefits under the CFD Is likely to cause LCCC to incur cost in carrying out its obligations under the CFD or meeting new obligations required by the modification Would affect any agreement between LCCC and any third party, or require new agreement between LCCC and any third party A modification may be necessary if the applicant acting reasonably could not accept the offer of a CFD without modification A modification will not be granted where its necessity relates to the circumstances of the ownership or control of the applicant 8

9 Delivery obligations ICP 12 months Contract signed Milestone Requirement OCP leading to Start Date Longstop Date Pre-generation activities including development, procurement construction, testing and commissioning Target Commissioning Window CFD value eroding if Generator has not commissioned Developer s choice of timeframe (3 to 5 years) 12 months 12 months (24 months for offshore wind) Contract Production and signing followed by Initial Conditions Precedent Milestone Requirement Operational Conditions Precedent 9

10 Contract production and signing LCCC is responsible for producing and issuing CFD contracts After LCCC receives a CFD notification from National Grid in respect of your project, before we send you a CFD contract, we will issue a letter to you notifying you of processes and key dates: Our offer of a CFD over a 10 working day period Generator obligation to return signed CFD within following 10 working day period Subsequent publication of new CFDs on CFD Register Completion of Initial Conditions Precedent over 10 working day period after Agreement Date Introduction to the CFD

11 Initial Conditions Precedent ICPs consist of: Legal Opinion - This confirms the Generator s legal capacity and authority to enter into the CFD Know Your Customer - This is a process by which LCCC must be satisfied of the legal identity, ownership and control of the Generator Description of Facility - This requires the Generator to provide details of the assets comprising the Facility and a map or plan of the Facility Introduction to the CFD

12 Milestone Requirement Within 12 months of contract signature, generators must demonstrate their commitment to delivering the project by fulfilling the Milestone Requirement in one of the following ways: By incurring actual spend equal to at least 10% of the Total Project Pre- Commissioning Costs which are the expected project development and construction costs for the relevant technology; or By evidencing various commitments to the Project, which are set out in the CFD including that the generator has sufficient means to finance the project Introduction to the CFD

13 Operational Conditions Precedent Settlement Required Information and systems 80% of Installed Capacity Estimate has been Commissioned Satisfaction of Metering Compliance Obligations Location of Facility Metering Equipment Operational requirements of Communications Equipment Introduction to the CFD

14 Installed Capacity Installed Capacity is defined in terms of continuous operation at maximum capacity without causing damage Final Installed Capacity notice can t exceed Initial Installed Capacity Estimate Installed Capacity can be reduced in certain circumstances 11

15 Commissioning Tests To demonstrate the Final Installed Capacity of the Facility has been installed and commissioned, all of the Commissioning Tests must have been successfully completed Commissioning tests and procedures will be specific to each technology and the generator must provide supporting evidence in sufficient detail to support the Installed Capacity being Commissioned Introduction to the CFD

16 Fuel Measurement Sampling Ofgem E-Serve is a contractor to LCCC in relation to FMS and sustainability aspects of the CFD Sampling/measuring enables the generator to determine: - Quantity of each of the fuels used in generating gross output each month - Energy content of each fuel - Fossil-derived contamination percentage by energy content of each fuel Generators are to propose procedures to sample and measure their fuel Ofgem E-Serve handles the procedure but LCCC will be responsible for all final decision making 12

17 Phased CFDs Applicable to larger offshore wind projects Structured to be divestible Affects metering requirements and settlement compliance obligations 13

18 Comparing phased CFD types Single Metering CFD Each phase must have at least one exclusive BM Unit Not possible to have two or more phases sharing a BM Unit Apportioned Metering CFD Additional metering and monitoring obligations SCADA data to enable apportionment of metered volumes across phases Introduction to the CFD

19 Key changes to the Standard Terms since the first Allocation Round There have been a number of changes to the CFD since the first Allocation Round. Broadly, these changes: 1. allow unincorporated Joint Ventures to enter into CFDs; 2. prevent payment being due for any period of six or more consecutive hours where the Intermittent Market Reference Price (the GB Day Ahead Hourly Price) is negative; 3. exclude the costs of the OFTO from the 10% spend Milestone Requirement; 4. require the Generator to warrant that it is not facing pending, threatened or actual litigation; 5. amend the original FMS and Sustainability arrangements to account for changes to the FMS and Sustainability arrangements under the RO; 6. amend the Metering Operational Framework and Technical System Requirements for the Private Network CFD to ensure they refer to the most up to date industry standards; Introduction to the CFD

20 Further anticipated changes to the Standard Terms since the first Allocation Round The following topics have been consulted upon and the government response will be published in due course: 1. cumulation of state aid; 2. definition of Foreseeable Change in Law; and 3. electricity storage. Any changes covering these topics will be made to the draft contract, which is due to be published by 9 February. Introduction to the CFD

21 LCCC Commercial Team James Rushton Head of Commercial Ryan Trow Commercial Lead Federica Maranca Commercial Lead Leonidas Papanikolaou Commercial Lead Sarah Paparo Commercial Manager Stephanie Houston Junior Commercial Manager Maris Koivastik Junior Commercial Manager James Walmsley Commercial Manager Shazia Hussain Junior Commercial Manager 14

22 Approach to contract management Proactive contract management approach focussed on generation outcomes Each generator has a dedicated Contract Management team Each team covers all the projects that are operated by a Company or Group Use of web site to post standardised documentation (Contract Notices) guidance (Key Dates Letter, ICPs) Feedback always welcome Topics covered in future events Material available on web site Website contractmanagement@lowcarboncontracts.uk 15