CfD winners eye first contractual milestone as LCCC receives all signed contracts

Low Carbon Contracts Company (LCCC) have now received all of the 99 signed contacts from July’s Contracts for Difference (CfD) auction, as projects start eying their first contractual milestones.

In what was the biggest and most diverse CfD ever, the fourth Allocation Round (AR4) saw 93 individual projects across Britain win contracts, with a total capacity of almost 11GW of clean energy supported.

This included 66 solar projects with a total capacity of 2.2GW winning contracts, as the technology competed for the first time since 2015.

All the winning projects will now work with LCCC to meet their contractual milestones, ahead of coming online in 2023-24.

“Our renewable energy auction scheme has been an outstanding success, with the latest round securing enough clean energy to power twelve million British homes and the price of clean energy plummeting even further,” said Kwasi Kwarteng, UK business and energy secretary.

“Getting contracts signed means projects can push on and deliver jobs and opportunities across the country. This will help to secure our homegrown supply of cheaper renewables and bring down the price of energy for millions of British families as we shift away from expensive fossil fuels.”

The addition of AR4 projects is expected to:

• Increase overall CfD capacity by 60%
• Increase the number of CfD projects in the schemes portfolio by 145%
• Increase the number of CfD project stakeholders LCCC engages with by 80%

The estimated notional monetary budget impact of the AR4 projects is expected to be less than zero in the first three delivery years, with an increase in 2027-28 matching the steep rise in generation capacity coming online.

LCCC noted that money flows under the CfD are always subject to the actual prices of generation at the time, meaning the AR4 portfolio would return money to the CfD scheme under current market prices.

Existing projects developed with CfDs have been paying back due to these high power prices, with £300 million paid over six months over the last winter period, and £1 billion forecast to be paid back between April 2022 and March 2023.

Analysis from the Energy and Climate Intelligence Unit in July, suggested that the contracts awarded in AR4 would save £7 billion on electricity costs under the wholesale prices seen in the current crisis.

“We’re delighted to welcome these projects to the CfD portfolio and can’t wait to get to work, whether that’s with our established CfD partners or new stakeholders,” said George Pitt, chief financial officer at LCCC.

“2022 has been a landmark year for the CfD scheme, and the diversity and scale of AR4 projects proceeding is a huge mark of confidence in it. Amidst unprecedented times, this new generation of power projects stands to benefit communities and businesses across the length and breadth of the country, as well as well as protecting the long-term health of our environment, economies and societies.”

Due to the number and diversity of contracts in AR4, LCCC automated the process used to produce, distribute and receive signed contracts, as opposed to the Emanual process used in previous allocation rounds where there were 16 contracts.

With allocation rounds set to occur annually from 2023, this process will save time and resources, the company noted.

AR4 projects must now pass the first contractual milestone on a CfD project’s journey to construction and operation, the Initial Conditions Precedent, within twenty working days.