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18 | DECEMBER 2020 | UTILITY WEEK Policy & Regulation Interview R egina Finn's first year as chair of the Low Car- bon Contracts Company (LCCC) and the Electric- ity Settlement Company (ESC) has been far from uneventful. The body, which was set up in 2013 following the gov- ernment's Electricity Market Reform programme to run the capacity market (CM) and contracts for difference (CfD) mechanisms, has been at the centre of some seis- mic events for the sector over the past 12 months. Shortly aer the former Ofwat chief executive joined LCCC – both companies operate under the single acro- nym – came the record-breaking third auction round, which saw strike prices plummet to as low as £39.65/ "What we need now is regulators not so much setting targets, as setting expectations and driving behaviour." Regina Finn, CHAIR, LCCC MWh – 30 per cent lower than the floor in the previous acution in 2017. A month later, the European Commission allowed the reinstatement of the CM, which had been suspended for a year following a legal challenge over its compliance with state aid rules. The shutdown meant more than £1 billion of deferred charges built up but Finn points out that the vast majority of this was paid in full, without the need for a second mutualisation. In March, the government bowed to mounting pres- sure to readmit onshore wind and solar projects into the fourth CfD auction, scheduled for late 2021. Earlier last month, prime minister Boris Johnson went further by announcing a doubling of capacity for that round. That is not to mention the gargantuan challenge of the Covid-19 pandemic to a business whose funding model is based on forecasting electricity demand. This pace of change may be with LCCC for some time if the government sees its model – "essentially short- hand for a private law contract", as Finn describes it – as a way of unlocking other maturing technologies. LCCC is already talking to the government about the role of a CfD for carbon capture and storage (CCS). Could it also be the key to unlocking the potential of hydrogen? Known unknowns Finn says uncertainty is nothing new to the organisation. "In some ways, you can compare the current situation [in relation to Covid] to when we started up," she says. "Because back then we didn't know what it was all going to look like. We have dealt with uncertainty in the past. It's just that this is a different uncertainty." Even so, the task of accurately predicting how much suppliers would have to pay to cover the cost of CfD gener- ation was made far more complex by the impact of Covid. This interim levy rate is calculated on the basis of forecast- ing the amount of CfD generation and the demand (netting off demand from energy-intensive industries) to come up with a pounds per megawatt-hour (£/MWh) figure. As Finn puts it: "When all those numbers move around it creates a very different picture. What happened was that we continued collecting the amount per mega- watt-hour but the megawatt-hours were going down – so we were collecting less money. "The mechanism was designed to cope with this sort of situation and there was never a financial risk to our business because of the way we are set up. But there was obviously a question of whether it was the right thing to do to ask for more money when there were suppliers out there facing real problems." The solution was for the Department for Business, Energy and Industrial Strategy (BEIS) to offer a loan, capped at £100 million, meaning the extra amount owed was not levied on suppliers in the short term. Finn stresses that this money will need to be repaid in the sec- ond quarter of 2020, but this means it will not compound the issues suppliers are facing this winter. While the future is uncertain, Finn points to a recov- ery in demand and the fact that the CfD reserve pot has now been replenished (standing at £127 million at the time of writing) as signs that another loan is unlikely to be requested.