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18 | 6Th - 12Th March 2015 | UTILITY WEEK Finance & Investment Market view W e always knew that the introduc- tion of contracts for difference (CfD) was going to ration the level of sub- sidy available to renewable projects. We also knew that offshore wind was going to swal- low a large chunk of the available funds – it was merely a question of whether more than one or two projects would get a CfD. The announcement of the CfD auction allocation round results on 26 February has, however, really brought home how the renewable world is going to look now that allocation of renewable support is no longer based on simply meeting the relevant accreditation criteria. In the event, offshore wind was awarded two CfDs: one for delivery year 2017/2018 and the other for delivery year 2018/2019. These two CfDs between them represent about 54 per cent of the total capacity awarded CfDs in this first allocation round. A further 35 per cent has been awarded to 15 onshore wind projects, across the delivery years 2016/2017, 2017/2018 and 2018/2019. Wind, therefore, gets 89 per cent by capacity of the CfDs allocated. The remaining 11 per cent has been awarded to advanced conversion technology (3 per cent), energy from waste (4.5 per cent), and photovoltaic (3.5 per cent). These numbers appear to point to larger wind (and in particular offshore wind) pro- jects doing rather better than smaller pro- jects – but is this the whole story and does it set a pattern for the future? Certainly there may be an argument that this first allocation round is unusual in that it is set against the current scramble to get projects accredited under the Renewables Obligation Certificate (ROC) regime before it closes. Additionally, it is not helpful that the Department of Energy and Climate Change (Decc) has stated it will not publish any information about individual bids, or, more importantly, about those bids that did not result in a successful allocation. By com- parison, the recent capacity market auction provided a full breakdown of bids. By definition, offshore windfarms have large installed capacities, so any success- ful bid is going to take a large slice of any available budget. The two projects awarded CfDs this time are well advanced in the development process and so will have a good idea of when exactly the commissioning date will occur. This is important because, unlike the ROC process, the route to a signed, effective CfD follows a highly structured, and very tight, timetable. Helpfully, the Low Carbon Con- tracts Company (LCCC, the CfD counterparty) will provide a summary of the key dates in that process by means of a generic letter that is being sent to all generators who are to be offered a CfD. This means generators have a set time- table of specific dates, calculated by refer- ence to the various regulations, but without the "do we count today or do we start tomor- row?" debate that invariably accompanies any calculation of business days. LCCC will issue signed CfDs on 12 March 2015 and countersigned CfDs must be returned by 5pm on 27 March 2015. There are then ten busi- ness days from the date on which the genera- tor signs its CfD in which to fulfil the initial set of conditions precedent (CPs). Failure to fulfil these in time will give LCCC a right to terminate the CfD. These initial CPs are largely adminis- trative and require the provision of a legal opinion on the capacity of the generator to enter into the CfD, provision of "know your customer" information about the genera- tor and the provision of certain information about the generating facility, including aerial maps. One important thing to note is that any further know your customer information that LCCC needs in addition to the generator's initial submission must be provided within the ten business day period. This is not the first timing-related termi- nation trigger built into the CfD. Each CfD contains milestone requirements that relate to the level of financial commitment that the generator has entered into. The mile- stone delivery date occurs not later than 12 months aer the date of signature, and failure to provide the relevant evidence will give the LCCC the right to terminate the CfD, although there are some procedures to go through, which means it is not quite the hair trigger that it sounds. There are then further CPs that must be satisfied by the start of the period known as the target commissioning window (TCW) – the duration of which is set according to technology type. If the further CPs are not satisfied by the beginning of the TCW, the term of the CfD is reduced by every day of delay in satisfying the further CPs, and if aer a year the further CPs are still not satisfied, once more the LCCC may terminate the CfD. These pre-start terminations do not give rise to compensation payments, but the generator will be prevented from participating in future CfD allocation rounds for a period of time. This timetable will be the same for every generator with a CfD. So all the projects with a CfD will be looking to align their procure- Contract conditions The results from the first contracts for difference auction are in and there is little for small developers or experimental technologies to celebrate, says Lis Blunsdon. Key points As expected, wind – especially offshore wind – was a major winner in the first contracts for difference (CfD) auction. Winning projects in the auction tended to be larger, suggesting the system is relatively inaccessible to smaller developers. Getting a clearer idea of what defined successful and unsuccessful bids is hampered by the Department of Energy and Climate Change's decision not to publish bid details. Those aspiring to gain signed CfDs will benefit from having a clear timetable to commission date. The regime of termination triggers involved in gaining a CfD means the system favours projects that are already well advanced at time of application.