All Energy 2015 CfD: The New Normal?

Transcription

1 All Energy 2015 CfD: The New Normal? Sarah-Jane McArthur, Associate 6 May 2015

2 Key Themes CfD 101 Reflections on allocation process Reflections on the auction outcome What next for the winners What next for everyone else The new normal?

3 What about tomorrow?

4 CfD 101

5 CfD: The Basics SR Guidance: New support scheme for low carbon - the only option >5MW post 1 April 2017 Intended to be less expensive to consumers than the RO Difference payment between a contractual strike price and a market reference price Two way payment obligation Private law contract between a generator and the CfD Counterparty CfD counterparty designed as an insolvency remote government owned entity No government or state guarantee of CfD

6 Reflection on Allocation Process

7 Supply Chain Plans Applicable to projects over 300MW Must be agreed with the Secretary of State before application Certificate from Secretary of State is an eligibility requirement Assessed on three criteria: innovation, competition and skills 50% marks required to pass. Process appears to have run as expected

8 Minor & Necessary Amendments Process run by Low Carbon Contracts Company Modifications to be agreed before applying Must be minor and necessary Must not impact designated terms Was expected to be applied strictly project specific amendments Process appears to have run as expected

9 Eligibility Planning and Consents Planning Consent for the relevant works to enable: wind farm to be established or altered electricity generated from the wind farm to be exported to the grid Types of Consents: Section 36 Consent Marine Licence Planning Permission What about conditionality? What about challenge? Experience straightforward approach.

10 Eligibility Grid Grid Connection Agreement accepted grid connection offer entered into by relevant operator for 75% or more of initial capacity estimate Must contain a connection date No express requirement to have determined cable routes or obtained third party consents Experience straightforward approach.

11 Reflections on Auction Outcome

12 CfD The Results Almost 4 times over-subscribed applications c. 1.2 billion and allocations c. 315 million. Significant oversupply of projects, perhaps distorted by large offshore wind projects - application numbers by technology would be helpful. Pot 1 winners: onshore wind = 81.8% of the contracts solar = 7.8%. This is a significant reverse for solar. Solar for 50? Not this time Pot 2, offshore wind = 95% of the contracts (2 projects only). Nothing for biomass. Last minute Pot 2 budget increase appears critical. Nearly all contracts discounted against the administrative strike price a success for the CfD auction policy. FIDe overpayment? Almost all capacity won by intermittent technologies. Policy re-think for baseload?

13 What Next for the Winners?

14 Signature and Initial CPs The projects that have signed CfDs are now on the LCCC CfD register. Hopefully everyone listed has completed their initial CPs. KYC Checks Facility Description and Plan Legal Opinion Reflection on the initial CP process. Importance of having your paperwork in order in advance Importance of submitting early to LCCC for feedback and resolution of issues. Director certification required for opinion. Board minutes required for opinion.

15 CfD Timeline Milestone Delivery Date First Commissioning Date Final Commissioning Date Longstop Date Application & Auction Allocation Development & financing Construction Target Commissioning Window Late Commissioning Contract value erodes Generator elects start date in TCW Reduction in CfD revenues Termination risk

16 Year One Milestone Option 1 Legal Spend 10% of project cost Includes spending by SPV and direct shareholder not group entity Evidence of spending not liability or commitment required No restriction on spending provided it is on the Project (but not grid) The spend target is not 10% of actual project cost but 10% of the deemed project cost in the legislation Example: deemed onshore wind cost per MW = 1,130,000 The table gives examples of 10% spend requirement Project MW Spend Target Zephyr Heights million Force Nine million

17 Year One Milestone Option 2 Legal Commitments Key components of this milestone: evidence that generator will have sufficient financial resources entry into a contract for the supply of all equipment necessary for generation lease option over all assets required to generate and deliver electricity (excludes offshore transmission) evidence no restrictions or encumbrances on use of Site evidence all necessary consents identified and credible strategy to obtain evidence a plan in place to discharge consent conditions No express standard of evidence stated Must prove the negative

18 Target Commissioning Window and Long-Stop Applicants must bid a Target Commissioning Window (TCW) CfD payments cannot commence before the first day of the TCW It is possible to commission before the TCW but no CfD payments will be made until the first day of the TCW If commissioning occurs after the last day of the TCW the CfD payment period will reduce from 15 years in relation to turbines not commissioned It will reduce day for day for each day of delay in commissioning eg a six month delay will result in a 14 year 6 month payment period Failure to commission by the long-stop date = CfD Termination Force Majeure and Grid Delay Extensions

19 What Next for everyone else?

20 What about the RO? Available up to April 2017 Once you have obtained a CfD, you cannot terminate and obtain RO accreditation Once you have applied for a CfD you cannot withdraw and obtain RO accreditation If you are unsuccessful in obtaining a CfD then the RO is available BUT Financing RO projects with a grid connection date / programmed completion date well into 2016 will be challenging Generally though all steps which are valid for an RO project will be valid for a CfD project so you can pursue a parallel strategy

21 The Next CfD Round Next CfD allocation round is expected to be in October DECC anticipate publishing the indicative budget for that allocation round in July (after the election) Allocation rounds are expected to be run annually rather than 6 monthly for budgeting certainty scope for constraints LCCC are obliged to publish details of CfDs awarded including strike prices these are now available on the CfD Register on LCCC s website

22 The Budget Anticipated last year c. 1 billion of budget in LCF for future CfD rounds. Overall budget in this round was underspent by 10m 315m of the 325m budget allocated, leaving 10m unallocated. Impact of projects switching from RO to CfD e.g. 2 offshore wind farms. Potential significant boost to budget capacity for the next CfD round. Impact of future price uncertainty - higher estimates for future difference payments resulting from lower electricity price forecasts will eat up budget. Impact of subsidy visibility to the consumer. Move to subsidy free?

23 Allocation to Competition Competitive auction is the only way forward Developers will have to become good bidders quickly. Pots could become more competitive Robust cost and revenue modelling is essential Dealing with uncertainty is key supply chain costs, finance costs, unforeseen events Only the best projects will now go ahead. Portfolio management and assessment is critical

24 The New Normal?

25 The New Normal? EMR Independent Evaluation DECC CfD Consultation closed 20 April Negative pricing Unincorporated Joint Ventures Clarifications Split CfD Allocation Process per Pot Reference to potential wider reform State aid and the Scottish islands Watch this space after tomorrow s outcome

26 All Energy 2015 CfD: The New Normal? Sarah-Jane McArthur, Associate 6 May 2015