ROCs or CfDs — the choice is not clear cut
With the Renewables Obligation (RO) scheme of support for new schemes to be phased out by 31 March 2017 and the replacement Contracts for Difference (CfD) scheme coming into effect next year, there will be a period of time in which developers will have a choice of which scheme to seek support under. As more details of the CfD scheme become available, Walker Morris compares some of the key risks under each scheme.
As we know, CfDs are envisaged to be introduced under the Electricity Market Reform (EMR). In essence, the clue is in the title, and payments will be made to generators by reference to the difference between a fixed notional price (the strike price) and the referenced electricity sale price (the reference price). Where the strike price is higher than the electricity price, the CfD counterparty is contractually obliged to pay the difference to the generator. Where the reference price is higher than the strike price however (i.e. the price of electricity is greater than anticipated) the generator is obliged to pay the difference to the CfD counterparty.
CfDs will be available to new projects from some time in 2014, while the RO scheme will remain open to new entrants until 31 March 2017. Therefore, projects looking to commission between 2014 and the RO closure date will have a one-off choice as to whether to receive support under the RO or a CfD. Making that choice requires a detailed analysis of the risks and benefits of each support scheme and applying them to the particular project in question: different developers, funders and investors will have different approaches to risk…
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