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BEIS opens consultation on CfD payment deferral

Nick Palmer Nick Palmer Senior Writer
27th May 2020

This extract is from issue 714 of Energy Spectrum, written on the 18 May 2020. For up-to-date news and insight on the energy sector, or to find out more about the full weekly publication, see the bottom of this extract.

BEIS launched a consultation on a proposal to defer to Q121 part of the increase in electricity suppliers' obligations for Q220 for the Contracts for Difference (CfD) scheme.

Launched on 12 May, the consultation is a follow up to the decision BEIS took on 24 April to provide a one-off loan to Low Carbon Contracts Company (LCCC) so that it can continue to pay generators without needing to increase the Interim Levy Rate at short notice. This was in response to the low demand during the COVID-19 lockdown.

This new consultation seeks views on reducing suppliers’ obligations for CfD payments this quarter, increasing suppliers’ obligations in Q121 and utilising the loan provided to LCCC. BEIS considers that giving suppliers this period of notice will substantially limit the negative short-term impact on supply businesses.

In particular, BEIS said, the approach will enable Ofgem to consider the value (small in the context of total supplier costs, corresponding to ~0.1% of a typical domestic annual bill) of deferred costs in the context of decisions regarding the setting of the Default Tariff Cap and Prepayment Meter cap for the relevant period (October 2020-March 2021) where appropriate. It will also give suppliers the ability to factor the same small change into their decisions relating to the setting of other variable, as well as new, fixed-price tariffs.

To implement these changes, BEIS intends, subject to the outcome of this consultation and the will of Parliament, to make and finalise changes to the ESO Regulations before 9 July 2020 (the date on which it currently expects LCCC to carry out the Q2 reconciliation process).

Specifically, BEIS is proposing that the level of each supplier’s obligation relating to the quarter should be reduced in proportion to its market share (of eligible demand) over the quarter. For example, if a supplier’s unadjusted obligation for CfD payments for Q220 is £1000 and it had a 10% share of eligible demand over that quarter, and the government loan amounted to £500, the supplier would see its obligation reduced by £50 (10% of £500) to £950. BEIS said this approach can be implemented using existing functionality in the LCCC’s settlement system....

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