Frequently Asked Questions

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What is Electricity Market Reform (EMR)?

The Government’s Electricity Market Reform programme (EMR) is designed to attract the £110 billion investment needed this decade to replace the UK’s ageing energy infrastructure with a more diverse and low-carbon energy mix. EMR is the biggest change to the electricity market since privatisation.

EMR will facilitate this vital investment through the introduction of two new schemes: the “Contract for Difference” (or “CFD”); and the “Capacity Market”.

What is the Low Carbon Contracts Company?

Low Carbon Contracts Company Ltd (LCCC) is a private limited company, wholly owned by the Secretary of state for Energy and Climate Change, and designated under The Contracts for Difference (Counterparty Designation) Order 2014 as the counterparty to Contracts for Difference (CFDs) and Investment Contracts. LCCC has an independent board of directors.  LCCC commenced operations on 1 August 2014 and its primary functions are to be the counterparty to and manage CFDs and Investment Contracts, to administer and manage the operational and supplier obligation levy arrangements for CFD difference payments and to be responsible for CFD settlement activity.

What are the key activities LCCC is responsible for?

As the designated counterparty to CFDs, LCCC is responsible for entering into and managing CFDs throughout their term. LCCC is also responsible for forecasting CFD payments to generators and setting the supplier obligation levy that funds them. LCCC is responsible for the settlement of amounts payable by and to generators and suppliers and outsources this work to EMR Settlement Ltd. LCCC also engages with delivery partners in particular in relation to forthcoming CFD allocation rounds. LCCC also manages the administration and operation process for the Electricity Settlements Company Ltd (ESC).

How many contracts does LCCC manage?

Please visit our CFD Register for full details of all the CFDs and Investment Contracts we manage.  The CFD Register is regularly updated and contains high level information such as party names, technology type, strike price and capacity.

What is the Electricity Settlements Company?

Electricity Settlements Company Ltd (ESC) is a private limited company, wholly owned by the Secretary of State for Business, Energy & Industrial Strategy and which has an independent board of directors.  ESC’s role is to act as the settlement body for the Capacity Market to ensure payment of capacity payments payable to capacity providers who have agreed to provide capacity (or reduce demand) at times of system stress.  ESC also collects capacity market supplier charges and settlement cost levy payments payable by electricity suppliers in order to fund capacity market payments and its operational costs. In addition, ESC collects and manages credit cover required from suppliers and potential capacity providers participating in the capacity auctions which are run by National Grid (as system operator). ESC has overall accountability for the managing the Capacity Market settlement process which includes determining Capacity Market settlement disputes. The administration and operation process for ESC are managed by Low Carbon Contracts Company Ltd.

What are CFD payments?

Under the CFD, ‘difference’ payments are made by either LCCC to the generator or vice versa depending on whether the ‘reference price’, being the average market price for electricity at the relevant point in time, is greater than or less than the ‘strike price’. When the reference price is less than the strike price LCCC pays the generator the difference between the strike price and the reference price. Conversely, when the reference price is greater than the strike price the generator will pay the difference to LCCC.

What is the Supplier Obligation?

This is the levy that electricity suppliers are required to pay under The Contracts for Difference (Electricity Supplier Obligations) Regulations 2014, as amended, to fund CFD payments.

How is LCCC ensuring value for money for electricity consumers?

LCCC’s guiding principle as a company is to maintain investor confidence in the CFD scheme and minimise costs to consumers. In managing CFDs, we proactively and efficiently manage generator contracts and supplier payment processes to minimise costs to consumers.

How is LCCC managed and governed?

LCCC is led by its Chief Executive Neil McDermott and is governed by an independent board which is chaired by Dr Martin Read. LCCC is also governed by a Framework Document which sets out LCCC’s relationship with its sole shareholder, the Secretary of State for Business, Energy & Industrial Strategy, and LCCC’s company guiding principle.

Can Grid deposits be included in the 10% of the Total Project Pre-Commissioning Costs on the Project in order to meet the Milestone Requirement?

The requirements for fulfilling the Milestone Requirement by way of Project spend are set out in Condition 4.1(A).  This Condition requires the Generator to show evidence that it, and its direct shareholders, have in aggregate spent at least 10% or more of the Total Project Pre-Commissioning Costs on the Project.  Therefore, in any given circumstance LCCC will need to be satisfied that at least the 10% minimum threshold amount has indeed been spent on the Project.

LCCC issued a contract amendment to Generators with a CFD for an onshore Generation Technology to confirm that grid connection costs (whether transmission network costs payable to National Grid or distribution network costs payable to a DNO) for onshore technologies may be eligible to count towards the 10% spent, provided that these grid connection costs have been spent and, as with all 10% spent monies, such costs have not been, and would not expected to be, refunded or repaid prior to the Facility being fully operational.

Where a letter of credit is given to National Grid as “security” for grid connection costs, the cost of obtaining the letter of credit (but not the value of the letter of credit) may be eligible to be part of the 10% spent.