Users of this website should read the FAQ disclaimer at the foot of this page. Please click here to access the FAQ disclaimer
As confirmed by DECC in its CFD Q&A document dated 11 September 2014, a Generator whose Project's planning permission is subject to a judicial review is not precluded from applying for a CFD. It is for CFD applicants to decide whether to apply for a CFD and whether they will be able to deliver the progress on the Project in accordance with the dates applying to the Milestone Requirement, Target Commissioning Window and Longstop Date. Potential applicants and CFD Generators should also note the "non-delivery disincentive mechanism" applying in circumstances where a Generator fails to sign a CFD which is offered to it (or where the CFD, having been entered into, is terminated within 13 months of the date of the CFD notification). Where the non-delivery incentive applies, a 13 month exclusion will be in place. The non-delivery disincentive mechanism is set out in the Contracts for Difference (Allocation) (Amendment) Regulations 2015. These Regulations also set out certain limited grounds upon which an application may be made to the Secretary of State for an exemption from the exclusion.
In accordance with Condition 79.1 of the Conditions (Restriction of Transfers), the Generator may not, without the prior written consent of LCCC:-
(A) assign to any person all or any of its rights or benefits under the CFD or any other CfD document;
(B) make a declaration of trust in respect of or enter into any arrangement whereby it agrees to hold in trust for any person all or any of its rights or benefits under the CFD or any other CFD Document; or
(C) transfer (whether by way of novation, sub-contract, delegation or otherwise) to any person, or enter into an arrangement whereby any person is to perform, any or all of its obligations under the CFD or any other CfD Document.
If, under Condition 79.1, a Generator requests LCCC’s prior written consent, LCCC will consider the specific circumstances of this request before providing consent. Any granted request will be provided in written form in a reasonable time period.
Interested parties are advised to review the provisions of the CFD in their entirety to assess the contractual risks and mitigants that may be associated with the withdrawal of a project’s planning consent.
CFD conditions that a generator may find difficult to comply with following the withdrawal of a project’s planning consent are below:
- the representations and warranties provided by the Generator in respect of Required Authorisations pursuant to Condition 28;
- the undertakings provided by the Generator in respect of Required Authorisations, and the notifications obligations in respect of such undertakings, pursuant to Condition 30;
- the Milestone Requirement demonstration requirements, as set out in Condition 4, and the termination provision set out in Condition 51 in relation to failure to meet the Milestone Requirement; and.
- the requirement that 80% of the Installed Capacity Estimate has been Commissioned as part of the Operational Conditions Precedent which must be fulfilled in order to trigger the Start Date (see Condition 3) and the requirements in respect of the Installed Capacity which must be Commissioned at the time at which the Final Installed Capacity Notice is provided to LCCC (see Condition 7 and Condition 53.1(D).
We would also note that certain force majeure protections in respect of contractual breach are incorporated into the Conditions (see in particular the defined term "Force Majeure" and Condition 69); along with ability for the Generator to reduce the Installed Capacity Estimate in particular specified circumstances. The scope of these protections is set out within the Conditions.
Interested parties are advised to review the provisions of the CFD in their entirety to assess the contractual risks and mitigants that may be associated with a failure to meet any particular Eligibility Requirement post CFD signature.
The list below is not an exhaustive list (and should not be read as such), but gives a guide to the circumstances which may be relevant;
- the representations, warranties and undertakings the Generator is required to provide under the CFD, and the notification obligations in respect of such undertakings, pursuant to Condition 30;
- the Milestone Requirement demonstration requirements, as set out in Condition 4;
- the notification requirement set out in Condition 3.12 in respect of any fact, matter or circumstances which will, or is reasonably likely, to prevent any of the Operational Conditions Precedent from being fulfilled by the Longstop Date;
- the requirement that 80% of the Installed Capacity Estimate has been Commissioned as part of the Operational Conditions Precedent which must be fulfilled in order to trigger the Start Date (see Condition 3) and the requirements in respect of the Installed Capacity which must be Commissioned at the time at which the Final Installed Capacity Notice is provided to LCCC (see Condition 7 and Condition 53.1(D)); and
The force majeure protection included within the CFD.
- The CFD does not preclude a Project from being delivered, or from generating electricity, earlier than the Target Commissioning Window.
- A Generator will not, however, receive Difference Amounts under the CFD in respect of electricity which is generated before the "Start Date", as defined in Condition 3.21.
- For the purposes of the CFD, the "Start Date" is, amongst other things, "no earlier than the first day of the Target Commissioning Window" (Condition 3.21(iii)).
- A Project therefore will not receive Difference Amounts under the CFD in respect of electricity generation earlier than the first day of the Target Commissioning Window.
“Generation Tax" is defined in Condition 1 of the Conditions:
“Generation Tax” means a tax or a levy, duty or impost in the nature of tax that is imposed by Her Majesty’s Government (or which Her Majesty’s Government has formally required a UK Competent Authority to charge) specifically and directly on electricity generators.
The key contractual provisions setting out the CFD position in respect of Generation Tax Change in Law are set out in Part 9 of the Conditions. These provisions include Conditions setting out the situations in which compensation would be payable and the way in which this compensation would be calculated. Interested parties should review these provisions.
"Force Majeure" is defined in Condition 1, with Condition 69 setting out the relief from breach and liability which is provided to the parties to the CFD where Force Majeure applies.
“Force Majeure” means any event or circumstance that is beyond the reasonable control of the FM Affected Party (which might be LCCC or the Generator) or, if relevant, its Representatives, which the FM Affected Party or its Representative (as appropriate) could not reasonably have avoided or overcome and which is not due to the FM Affected Party’s fault or negligence (or that of its Representatives), provided always that neither non-availability of funds nor the lack of funds shall ever constitute Force Majeure.
A Relevant Construction Event (RCE) is defined in Condition 1 and means a Construction Event:
(A) of which no Generator acting in accordance with a Reasonable and Prudent Standard and having made all due and careful enquiries would have been aware, and of which the Generator was not aware, at the FiT CFD Application Date; and
(B) which renders the development, completion, construction, conversion, installation or commissioning of the Facility to meet the Installed Capacity Estimate uneconomic.
- Under Condition 5.1, a Generator may, if it considers that a Relevant Construction Event has occurred, give a notice to LCCC (an “RCE Notice”). An RCE Notice must be given to the LCCC no later than three (3) months prior to the Longstop Date (the “RCE Deadline”). In accordance with Condition 5.1(C), the RCE Notice shall include such Supporting Information as the Generator considers to be relevant to evidence the basis for the Generator having concluded that the Construction Event constitutes a Relevant Construction Event (RCE).
- The burden of proof is therefore in the first instance on the Generator to satisfy LCCC that the RCE event has occurred and fulfils the “uneconomic” test in the relevant circumstances. Whether or not a construction event has rendered the development, completion, construction, conversion, installation or Commissioning of the Facility to meet the Installed Capacity Estimate uneconomic will need to be assessed by LCCC on a case by case basis.
Among other things, in order for a Change in Law to fall within the definition of "Qualifying Change in Law" as defined in the Conditions, it must not be a "Foreseeable Change in Law". The term "Foreseeable Change in Law" is defined within Condition 1.
Agreement by the CFD Parties of the FMS Proposal is a Further Condition Precedent to the Conditions. Another Further Condition Precedent is that the generating station is commissioned. There is no maximum time period associated with the FMS Proposal and the other Further Conditions Precedent, rather the Start Date of the CFD does not commence until all the applicable Further Conditions Precedent are met to the satisfaction of LCCC. In other words, a Generator will not be eligible for difference payments until the Further Conditions Precedent have been fulfilled.
The Generator provides with its account details for payments. This is detailed within Condition 27 (Payment accounts) of the Conditions.
Paragraph 1.1 (FMS Proposals Response Notice) of Part A (FMS arrangements) of Annex 7 to the Conditions, states that as soon as reasonably practicable following the Agreement Date the Generator shall give to LCCC an FMS Proposals Notice.Paragraph 1.4 provides that LCCC shall, no later than twenty (20) Business Days after receipt of the FMS Proposals Notice, give a notice to the Generator (an “FMS Proposals Response Notice”). This notice will specify whether LCCC:
- consents to the Generator FMS Proposals;
- does not consent to the Generator FMS Proposals, in which case LCCC shall summarise its reasons for not consenting to the Generator FMS Proposals; or
- considers that it has not been provided with sufficient Supporting Information to determine whether to consent to the Generator FMS Proposals (and, in such circumstances, LCCC may request further Supporting Information from the Generator in connection with: (a) the Generator, the Facility and the Generator FMS Proposals; and (b) any potential amendments, modifications, supplements or replacements LCCC may require to be made to the FMS Procedures contained within the Generator FMS Proposals) (the “FMS Proposals Supporting Information”).
Where LCCC consents to the Generator FMS Proposals, such proposals will then be adopted as the FMS Procedures in respect of the relevant Project. Alternatively, where either (B) or (C) above applies, paragraph 1.6 of Part A of Annex 7 obliges LCCC and Generator to meet in good faith to seek to agree upon the FMS Procedures which should apply.
In practise we encourage Generators to contact us after having fulfilled the Initial Conditions Precedent to discuss the process for fulfilling the FMS requirements. LCCC considers it practicable to start the discussion early so that the Generator fully understands the requirements. However, we also recognise that some details of the FMS procedure are subject to the design of the facility being sufficiently advanced.
Generators should note that the FMS procedure forms part of the Further Conditions Precedent that must be fulfilled prior to generation and payment under the CFD contract.
LCCC has an agreement in place for Ofgem to provide FMS services.
Condition 1 of the Conditions defines "TLM (D)" as:
- the transmission losses adjustment allocated in accordance with the BSC to BM Units belonging to delivering Trading Units and defined as at the Agreement Date in section T of the BSC as TLMO+j; or
- any new or substitute multiplier or factor which is in the nature of, or similar to, that adjustment.
Condition 47 Conditions sets out the mechanism through which (for Projects to which Part 10 of the Conditions applies) the Strike Price is adjusted in relation to changes to TLM(D). Interested parties should review these provisions.
The contractual requirements for fulfilling the Milestone Requirement by way of a 10% Project spend are set out in Condition 4.1 of the Conditions. This Condition requires the Generator to evidence that it and its direct shareholders have in aggregate actually spent at least 10% 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 minimum threshold amount has indeed been actually spent on the Project. The term “Project” is defined within the CFD and incorporates a cross reference to the term “Facility”, which itself is defined within the CFD Agreement.
These frequently asked questions and responses (“FAQs”) have been prepared by Low Carbon Contracts Company Ltd ("LCCC") in response to queries raised by stakeholders in relation to the content of the Contract for Difference (“CFD”), which is comprised of the CFD Agreement and CFD Standard Terms and Conditions (“Conditions”), as published by the Department of Energy & Climate Change on 29 August 2014. The FAQs are also applicable to Investment Contracts (“ICs”) but users of this website are advised to fully review the equivalent clauses in their ICs as there are differences between the CFD and the IC.
These FAQs are subject to and are provided on the basis of the following:
- The FAQs do not supersede or replace the provisions of the CFD or IC and are not intended to and do not constitute legal, investment, commercial or operational advice and should not be relied upon as such. Users of this website should not place reliance upon these FAQs and should refer to the full terms of the CFD or IC, and/or consult their professional advisors where they require information or advice on matters relating to the CFDs or ICs generally and/or any CFD or IC to which they are a party.
- The FAQs reflect the current thinking and approach of LCCC and should not be viewed as in any way as binding on LCCC.
- It is our intention to keep the FAQs under review and to publish revised issues from time to time.
Defined terms used in the FAQs but not defined therein have the meanings prescribed to them in the CFD or IC (as applicable) and the Energy Act 2013.