This quarter the Contracts for Difference (CfD) mechanism that smooths and supports income for renewable energy generation will return money to electricity suppliers for the first time. It will return over £39 million for the last quarter of 2021 and expects to return more cash at the end of this quarter.
The Low Carbon Contracts Company (LCCC), which transfers payments, says that rising power prices in Q3 2021 meant it saw the first day and week of net negative generator payments in the period.
Under the Contracts for Difference (CfD) scheme, CfD generators receive top-up payments from consumers, via their suppliers, to the strike price they are paid for the low-carbon electricity they generate. CfD generators pays money back when market prices rise beyond their strike price, acting as a hedge for consumers. The mechanism helps stabilise generator earnings and the strike price is set via auctions – the Round 4 auction is currently under way.
Given the high wholesale prices during the latter half of 2021, LCCC said it reduced the CfD levy paid by suppliers to zero in September – the first time that had happened – and it remained at that level until 31 December. The first full week of net negative generator payments was 8 – 14 September.
At the end of a quarter, the amount collected from generators is reconciled with suppliers. If the sum of the overcollection passes a ‘reserve’ threshold it is returned to suppliers.
On 12 January LCCC said it expected to return £39,222,407. And as the wholesale prices remain high, the levy has also been set at zero for the current quarter, and “LCCC is currently forecasting another net payment to suppliers in the next quarterly reconciliation”.