Investment contracts—early contracts for difference (CfD)

The following Energy practice note provides comprehensive and up to date legal information covering:

  • Investment contracts—early contracts for difference (CfD)
  • Investment contracts
  • R (on the application on Drax Power) v Secretary of State for Energy and Climate Change

Investment contracts—early contracts for difference (CfD)

Investment contracts

An investment contract is an early form of contract for difference (CfD), provided for by the Energy Act 2013 (EA 2013) as a transition arrangement to avoid an investment hiatus whilst the CfD programme arrangements were finalised. The investment contracts work like CfD do, by paying the electricity generator party to the contract the difference between the 'strike price' and the 'reference price'. The 'strike price' is the price for electricity reflecting the cost of investing in a particular low carbon technology, while the 'reference price' is the measure of the average market price for electricity in the market. As such it is a form of hedge against electricity price volatility, and so these contracts have been created to provide long-term price stabilisation to low carbon plant, and to enable investment to come forward at lower capital costs.

See Practice Notes: Contracts for Difference (CfD)—key features and the Contracts for Difference (CfD) tracker tool, which displays the current status and most recent developments in relation to the scheme, covering consultations, regulatory guidance publications and key amendments to the CD mechanism.

Investment contracts were launched in March 2013 by the former Department of Energy and Climate Change (DECC) and using the Final Investment Decision Renewables Process, investors had until 1 July 2013 to apply for early investment in advance of the CD regime. The application process was split

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