Contracts for difference (CfD)—key features of the supplier obligation
Produced in partnership with Anna Ai of Addleshaw Goddard

The following Energy practice note produced in partnership with Anna Ai of Addleshaw Goddard provides comprehensive and up to date legal information covering:

  • Contracts for difference (CfD)—key features of the supplier obligation
  • Electricity market reform and contracts for difference
  • Supplier obligation
  • Key features of the supplier obligation
  • Consultations and amendments
  • Brexit and the supplier obligation
  • Exemptions
  • EIIs Exemptions
  • Renewable Generators Exemption
  • COVID-19 impact on the supplier obligation

Contracts for difference (CfD)—key features of the supplier obligation

Electricity market reform and contracts for difference

The Electricity Market Reform (EMR) programme was developed by government about ten years ago to make changes to the Great Britain electricity system, in order to promote investment in secure and affordable low carbon energy. This was necessary due to pressure on the existing fossil fuel dependent system and because of the focus shiftto a cleaner and more diverse mix of energy generation (including renewables, nuclear and carbon capture and storage). For more information on EMR generally, see Practice Note: Electricity Market Reform (EMR).

The key EMR mechanism in respect of encouraging low carbon generation is the contracts for difference (CfD) mechanism. CfDs provide long-term price stabilisation to low carbon plants, enabling investment to come forward at lower capital costs, which means lower costs for consumers.

A CfD is a private law contract between a low carbon electricity generator and the Low Carbon Contracts Company (LCCC). The LCCC is a government owned company (often referred to as the ‘CfD Counterparty’).

The electricity generator party to the CfD sells the electricity produced in the wholesale market and receives the difference between the 'strike price' and the 'reference price' by way of top-up payment from the CfD Counterparty. The 'strike price' is the price for electricity reflecting the cost of investing in a particular low carbon technology, while the 'reference

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