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Demand for CfD eligible EU GOs to reduce in the UK as LCCC sets Interim Levy Rate to zero

Wednesday, 06 October 2021

Low Carbon Contracts Company (LCCC) has decided to reduce the Interim Levy Rate (ILR) for the Quarterly Obligation Period 1 October 2021 to 31 December 2021 to £0/MWh and has determined the ILR and Total Reserve Amount (TRA) for the Quarterly Obligation Period 1 January 2022 to 31 March 2022. The amounts are:

  • ILR = £1.908/MWh
  • TRA = £303,432,348.09

Q3 2021 in the UK for the CfD scheme was a period of firsts: the first day of net negative generator payments (i.e. UK renewable energy generators on a net have paid more than what they are supposed to receive) on 6 September, as well as the first full week of net negative generator payments for the period between 8 and 14 September, mainly due to very high power prices in the UK.

The Contracts for Difference (CfD) scheme is designed so that when market prices are higher than strike prices, generators will pay back the difference to Low Carbon Contracts Company (LCCC). When a quarter is settled, the amount collected from generators is reconciled with suppliers. Any overcollection of funds is put towards the Total Reserve Amount (TRA) paid for the next quarter, effectively reducing the amount suppliers have to pay. If the sum of the overcollection and the current TRA is higher than the next quarter’s TRA, the difference is returned to suppliers.

LCCC expects that September 2021 will become the first full month of net negative payments. This comes in addition to the reduction of the Q3 2021 Interim Levy Rate (ILR) to £0.000/MWh from 14 September, as it became clear that no additional payments would be required for the rest of the quarter. More details will be given on LCCC webinar on 25th October 2021.

This also would mean demand for CfD eligible EU GOs (Renewable energy assets in the EU commissioned from April 2015) from UK suppliers for Q4 2021 and potentially Q1 2022 would reduce, as UK suppliers would not prefer to use EU GOs for CfD levy exemption when the value of such an exemption is zero.

Source: LCCC determines ILR and TRA for Q1 2022 and adjusts ILR for Q4 2021 | Low Carbon Contracts Company

CfD portfolio: net negative cost in September 2021 | Low Carbon Contracts Company