Lords and industry cast doubt on role of CfDs

by Janet Wood

Concerns about the robustness of the government’s main planned subsidy regime for low-carbon generation – contracts for difference (CfD) – have been raised again in responses to the draft Energy Bill.

EnergyUK, a n industry lobby group, said the current multiparty model had “considerable difficulties” and added that it wanted a single, creditworthy counterparty. It said further work should examine whether other financial instruments should be used alongside CfDs. It also said further work was needed to assess the implications of CfDs for balance sheets and financial accounting.

A working group of Lords also said it had “serious doubts” about the mechanism in a response to the Bill. It expressed dismay over how much of the detail of the key measure would be in secondary legislation. “The shape of the generating system in the UK could well be set for several decades under a system that was both opaque and devoid of any serious external

scrutiny,” according to the group’s report.

The group also raised concerns over the fact that most of the energy price-setting would fall to the government. It said that would mean government taking a view on long-term energy costs, and “we do not see how the government can do this in any credible way”.

The peers suggested including “break points” in the contracts, which EnergyUK proposed recompense provisions in case a future government dismantled the CfDs.

Both groups warned that the Bill could disadvantage small and independent players.

This article first appeared in Utility Week’s print edition of 31 August 2012.

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