Low Carbon Contracts Company & Electricity Settlements Company

The Low Carbon Contracts Company and the Electricity Settlements Company are both private limited companies owned by the Secretary of State for Business, Energy and Industrial Strategy (BEIS) and established to play key roles in the delivery of Electricity Market Reform (EMR), the biggest change to the electricity market since privatisation

12th January, 2022

Reconciliation of Q4 2021 payments sees CfD portfolio paying back to electricity suppliers

While Q3 2021 saw the first day and week of net negative generator payments, 2022 starts with another milestone for the CfD scheme: the first quarter the scheme will return money to electricity suppliers.

Under the Contracts for Difference (CfD) scheme, CfD generators have, to date, received top-up payments to the strike price they are paid for the low-carbon electricity they generate. This has had a huge impact on diversifying and increasing investment in renewable power since 2014, as the CfD has helped to stabilise what generators earn, whilst auctions for the contracts have brought down the cost of this power for consumers.

However, the scheme is designed to work two ways, with CfD generators paying money back when market prices rise beyond their strike price. Hence the CfD not only gives investors confidence but also acts as a hedge for consumers, as we have seen in the current market.

Given the high wholesale prices during the latter half of 2021, Low Carbon Contracts Company (LCCC) reduced the CfD interim levy rate (ILR) to £0/MWh in September – the first time this had ever happened. The first full week of net negative generator payments followed, during 8 – 14 September 2021. The ILR has remained at £0/MWh since 14 September 2021 and throughout the latest quarterly obligation period (QOP) of 1 September – 31 December 2021. Under the regulations governing the CfD, LCCC cannot set an ILR lower than £0/MWh.

At the end of a quarter, the amount collected from generators is reconciled with suppliers. Any surplus funds are put toward the Total Reserve Amount (TRA) to be paid to LCCC for the next quarter, effectively reducing the amount suppliers have to pay. If the sum of the overcollection and the current TRA is higher than the next quarter’s TRA, the difference is returned to suppliers.

As of today (12 January 2022), the expected net payments from generators over the quarter total £133,667,990, whilst the TRA for Q4 2021 was £208,986,765. The TRA for Q1 2022, which is set at £303,432,348, is netted off against the Q4 2021 numbers, which means LCCC’s forecast total reconciliation payment is £39,222,407.

Given the ongoing high wholesale prices, the ILR has also been set at £0/MWh for the current quarter, and LCCC is currently forecasting another net payment to suppliers in the next quarterly reconciliation.

For further detail, LCCC’s In-period Tracking dashboard compares forecast CfD payments against the realised values for the current quarter, providing an estimate of the reconciliation payment to be made to electricity suppliers. Greater detail still can be accessed via the datasets available for download in LCCC’s Data Portal. Our Forecasting team will discuss the outcome of Q4 2021 during our quarterly CfD ILR/TRA webinar on 27 January; for more details and to register for the webinar, please see our Events webpage.

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