CfD portfolio: net negative cost in September 2021

Q3 2021 was a period of firsts: the first day of net negative generator payments on 6 September, as well as the first full week of net negative generator payments for the period between 8 and 14 September.

The Contracts for Difference (CfD) scheme is designed so that when market prices are higher than strike prices, generators will pay back the difference to Low Carbon Contracts Company (LCCC). When a quarter is settled, the amount collected from generators is reconciled with suppliers. Any overcollection of funds is put towards the Total Reserve Amount (TRA) paid 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 we are approaching the end of the month, it is likely that September 2021 will also become the first full month of net negative payments, according to our latest projections. Any overcollection will reduce the burden on Suppliers during these challenging times. This comes in addition to the reduction of the Q3 2021 Interim Levy Rate (ILR) to £0.000/MWh from 14 September, as it became clear that no additional payments would be required for the rest of the quarter. In this way, the CfD works to blunt the impact of high prices.

We will discuss the outcome of Q3 2021 in more detail in our quarterly webinar on the 25 October; for more details and to register for the webinar, please see our Events webpage.