Contracts for Difference (CfD)—key features
Contracts for Difference (CfD)—key features

The following Environment guidance note provides comprehensive and up to date legal information covering:

  • Contracts for Difference (CfD)—key features
  • Electricity market reform (EMR)
  • The Contract for Difference (CfD)—the basics of the mechanism
  • CfD—application, allocation and auction
  • CfD contract—the contract terms in more detail
  • Offtaker of last resort (OLR)/Backstop Power Purchase Agreement (BPPA)
  • Non-delivery disincentive (NDD)
  • Investment Contracts—early CfD contracts
  • CfD and the renewables obligation (RO)

Electricity market reform (EMR)

The EMR programme was developed by the government to promote investment in secure forms of capacity and affordable low carbon energy generation.

The key mechanisms used to implement EMR were:

  1. the Contracts for Difference (CfD) regime, which takes the form of a contract (CfD contract) guaranteeing owners of new build low carbon generation projects a long term stable income in respect of the electricity they generate when their plant has been built and begins operating

  2. the Capacity Market (CM) regime, which provides a regular payment/retainer to reliable forms of electricity capacity (in the form of generation plant, electricity storage (such as batteries), reduction in electricity demand and international interconnection wires), in return for such capacity being available when the system needs that boost. See Practice Note: Capacity Market—key features

  3. the Carbon Price Floor, implemented to support the EU Emissions Trading System (EU ETS) (see Practice Note: Emissions controls and carbon pricing in respect of carbon emissions from UK fossil fuel powered electricity generation).The UK’s Carbon Price Floor was introduced to work in conjunction with the EU ETS scheme by underpinning the price of carbon at a level that drives low carbon investment

  4. the Emissions Performance Standard, a duty imposed on the operator of a ‘fossil fuel plant’ consented (or undergoing certain extensions) on or after 18