Response to consultation confirms Ministers will delay increase in Contract for Difference costs for energy suppliers by longer than originally planned

The government has formally responded to its fast-tracked consultation on proposed changes to the Contract for Difference (CfD) regime, confirming it will move to minimise the financial impact on energy companies currently battling the disruption caused by the coronavirus crisis.

Last month, the Department for Business, Energy, and Industrial Strategy (BEIS) proposed deferring part of the increase in suppliers’ financial obligations under the CfD regime, which were due to be collected in July by the Low Carbon Contracts Company (LCCC) that administers the scheme.

The payments were set to be significantly higher than expected, as the falling energy wholesale prices that resulted from the government-imposed coronavirus lockdown meant top up payments to renewables generators that hold CfDs were higher than anticipated.

Given energy companies are already facing significant disruption and reduced revenues due to the overall fall in energy consumption, BEIS launched a fast-tracked consultation proposing to delay the increased CfD payments until next year.

In a formal response to the consultation published yesterday the government announced it would go further than originally proposed in minimising the imminent financial obligations faced by energy suppliers.  

It said it would protect energy firms from 80 per cent of the increase in suppliers’ obligations – up to a total cost of £100m – in the second quarter of 2020, marking an increase on the 67 per cent that had been proposed.

It also confirmed it would defer the delayed payments by an additional quarter until the second quarter of next year, rather than the first quarter of 2021 as had been originally proposed.

The consultation response also confirms plans to amend CfD regulations to allow LCCC repay a government loan worth up to £100m that will help it ensure payments are still made to renewables generators, despite the deferment of payments from energy suppliers. The changes to regulations will also allow LCCC to consider future loan repayment requirements when setting future levy rates for suppliers.

BEIS confirmed that the amended Contracts for Difference (Electricity Supplier Obligations) Regulations were laid yesterday in anticipation that Parliament can approve them before 9 July – the date on which LCCC is expected to carry out the reconciliation process for the current quarter.

Source : Businessgreen.com