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The government has agreed to make a “one-off interest-free loan” to the Low Carbon Contracts Company (LCCC) to help offset a rise in Contracts for Difference (CfD) top-up payments due to the coronavirus pandemic.
LCCC did not disclose the amount but said it should hopefully allow the company to make the payments for the second quarter of 2020 without raising the associated levy on suppliers.
In an update to the industry, LCCC said it will probably still need to draw upon its cash reserves and may have to have to fill the shortfall in the third quarter, but the loan should offer suppliers some short-term relief.
The Department for Business, Energy and Industrial Strategy (BEIS) intends to amend the relevant regulations to prevent the loan amount from being recovered as part of reconciliation in July and instead allow LCCC to recoup it from suppliers in the first quarter of 2021. However, this is subject to consultation and parliamentary approval.
Despite the loan, LCCC said it is also still possible that it may be forced hike the levy on suppliers for the second quarter of 2020, but added: “Both LCCC and BEIS wish to avoid this situation; demand will be closely monitored, and any changes clearly signalled to the market.”
The CfD counterparty said there has been a “significant drop in demand” as a result of the coronavirus lockdown. This has led to a fall in wholesale electricity prices and therefore an increase in top-up payments to contracted generators who receive a guaranteed price for the power they produce.
According to the rates published in December, the supplier levy was due to rise from £7.469/MWh between April and June to £8.532/MWh between July and September. LCCC said it is keeping the rate for the third quarter of 2020 “under review”.
Earlier this month, LCCC confirmed its view that the pandemic does constitute a force majeure event, stating that it will take a “reasonable and pragmatic approach” to generators’ claims for relief from their obligations. But it said generators must demonstrate they have made “reasonable endeavours” to mitigate the impact of the lockdown.
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