LCCC briefing on the CfD scheme
Posted 05.09.2022
Briefing – An introduction to the CfD and its role in the energy bill crisis.
Here’s a breakdown on what to expect:
- CfD and the ‘Green Levy’: The document begins by addressing the Contracts for Difference (CfD) in the context of the energy bill crisis, explaining its role as part of the ‘green levy’. It clarifies that the CfD is the only growing scheme supporting renewable energy, with others like the Feed-In Tariff (FIT) and Renewables Obligation (RO) being closed to new generation.
- Mechanism of CfD: It describes how the CfD works as a private law contract between a generator and the Low Carbon Contracts Company (LCCC), which stabilizes the generator’s income through difference payments. These payments are based on the market price for electricity and the generator’s strike price, with funds moving between LCCC and the generators depending on market conditions.
- Market Performance: The briefing details the performance of the CfD in the current market, noting that historically, LCCC has levied suppliers to fund payments to generators when market prices were below strike prices. However, it mentions a recent shift where generators have been paying back to LCCC due to higher market prices, leading to a zero levy on suppliers and subsequent payments back to suppliers at the end of each quarter.
- Impact on Ofgem Price Cap: Lastly, the document discusses the CfD’s contribution to the Ofgem price cap, highlighting the complexities in forecasting day-ahead prices and the role of LCCC’s forecasts in setting the price cap. It also notes the adjustments made to the price cap based on the actual income received from generators, which can mitigate electricity price rises to some extent.
Briefing – An introduction to the CfD and its role in the energy bill crisis